Air Canada · TSX:AC
Air Canada — CIBC 17th Annual Eastern Institutional Investor Conference 2018
31 slides from Air Canada's conference presentation, Sep 26, 2018
Slide 1: 17th Annual Eastern Institutional Investor Conference
At the 17th Annual Eastern Institutional Investor Conference Michael Rousseau Executive Vice President & Chief Financial Officer Montreal September 26, 2018
Slide 2: Caution Regarding Forward-Looking Information
Caution Regarding Forward-Looking Information This presentation includes forward-looking statements within the meaning of applicable securities laws. Forward -looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet de
Slide 3: Path to Global Champion
Path to Global Champion Financial Air Canada Customer Stability Fleet Rouge Engagement • Pension • Modern wide- • Competitive • Improved solvency body fleet cost structure in customer surplus leisure markets experience • Seat • Record financial Labour densification Network • Provides Regional • Awar
Slide 4: Materially Reduced Risk Profile
Materially Reduced Risk Profile • Network diversification • Fleet flexibility • Pool of unencumbered assets • Long-term labour contracts • Fully-funded pension plans • Fuel and foreign exchange programs • Lower leverage and cost of debt, and access to several financing sources • Significantly higher
Slide 5: Four Priorities
Four Priorities 5
Slide 6: International growth
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 6
Slide 7: Growth Directed to International Markets
Growth Directed to International Markets • Over 90% of growth in last several years has been directed at U.S. and international markets • On a system basis, capacity increased 40% over last three years • Broadening footprint with commercial alliances and leveraging A++ revenue sharing joint venture
Slide 8: Air Canada Rouge – First Five Years are a Major Success
Air Canada Rouge – First Five Years are a Major Success • > 25 million customers carried since 2013 launch • > 70 destinations on five continents • 53 aircraft (22 Airbus A319s, 6 Airbus A321s and 25 Boeing 767s) Summer 2018 (Atlantic) • New routes added for summer 2018 include: Toronto & Montreal t
Slide 9: Growth of Traffic Transiting Canada to/from the U.S. (6th Freedom)
Growth of Traffic Transiting Canada to/from the U.S. (6th Freedom) Growing market share to 2% would represent $930M of incremental annual revenue AC 6th Freedom Passengers Carried Market Share of International to/from U.S. Traffic to/from U.S. 41.9% + 101% 11.1% 10.9% 7.3% 6.9% 5.2% 3.2% 3.0% 2.4% 2
Slide 10: Cost & revenue transformation
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 10
Slide 11: Strong Revenue Growth Continues
Strong Revenue Growth Continues CAGR • Yields expected to improve (in millions $) +7.0% − Maturity of new routes 16,252 − Stage length growth rate declines 13,868 14,677 − Passenger mix impact diminishes 13,272 12,382 − Focus on higher-yielding corporate customer − Effective yield management through
Slide 12: Improving Margins through Premium Products
Improving Margins through Premium Products • International growth strategy is fueled by premium traffic • Air Canada Signature Class • Premium products (Air Canada Signature Suite, Maple Leaf Lounges, Priority check-in areas, concierge, priority boarding, quality in-flight cuisine) enhance the exper
Slide 13: Investments in Technology Driving Future Benefits
Investments in Technology Driving Future Benefits Passenger Service System Branded Fares Fuel Management System Principal IT system supporting Expanded suite of fare offerings Petroleum administration, reservations and departure inventory control and control operations expenditures system • Better p
Slide 14: New Boeing 737-8 MAX Expected to Provide 11% CASM Reduction
New Boeing 737-8 MAX Aircraft Expected to Provide 11% CASM Reduction versus Air Canada’s A320 Aircraft -11% A320 CASM Fuel Crew Maintenance Airport User Ownership Boeing 737-8 Fees & Other CASM 14
Slide 15: New Airbus A220-300 Expected to Provide 12% CASM Reduction
New Airbus A220-300 Aircraft Expected to Provide 12% CASM Reduction versus Air Canada’s Embraer 190 Aircraft -12% E190 CASM Fuel Crew Maintenance Airport User Ownership A220-300 Fees & Other CASM 15
Slide 16: Cost Reduction Program
Cost Reduction Program Adjusted CASM declined 6.1% over the last four years • Company-wide initiatives – savings of $90 million in 2017 • Procurement initiatives – savings of $120 million over life of agreements • Jazz CPA compensation declines $55 million per year from 2021 • New Cost Transformatio
Slide 17: Customer engagement
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 17
Slide 18: Strengthening Customer Loyalty through Digital Experience
Strengthening Customer Loyalty through Digital Experience Enhanced Customer Redesign & optimize Personalize customer Relationship Management digital channels content, offers & services system Redesign & Create a single view optimize our of all customers Monetize customer data digital channels (curre
Slide 19: Loyalty Program
Loyalty Program Expect to unlock significant value through the launch of loyalty program – Program design in process after extensive research – Process on schedule and on budget August 2018 − Consortium (AC, TD Bank, CIBC, Visa Canada) reaches agreement in principle with Aimia for acquisition of Aer
Slide 20: Industry Awards
Industry Awards Best Airline in North America (Skytrax) Four-Star ranking (Skytrax) Best Long-Haul Airline in the Americas (AirlineRatings.com) 20
Slide 21: Culture change
1 International growth 2 Cost & revenue transformation 3 Customer engagement 4 Culture change 21
Slide 22: Long-Term Collective Agreements with Unions
Long-Term Collective Agreements with Unions Long-term collective bargaining agreements provide: 1. Cost certainty 2. Significantly enhanced efficiency 3. Team engagement 4. Additional flexibility to respond to competitive threats and internal business challenges 5. Solid platform from which to inves
Slide 23: Fostering Positive Culture Change with Engaged Workforce
Fostering Positive Culture Change with Engaged Workforce Employee surveys and several awards demonstrate marked improvements in employee culture and engagement as Air Canada is voted one of: – 50 Most Engaged Workplaces in North America (2018) – Canada’s Top 100 Employers (2018) – Montreal’s Top Emp
Slide 24: Financial Targets
Financial Targets 24
Slide 25: Investor Day Targets and Current Outlook
Investor Day Targets and Current Outlook (1) Annual EBITDAR approximately 16% 17% - 20% Margin in 2018 in 2019 and 2020 approximately 12% 13% - 16% Annual ROIC in 2018 in 2019 and 2020 $350-$500 million $2.0-$3.0 billion Free Cash Flow in 2018 cumulative over 2018 to 2020 period 1.2 Leverage Ratio b
Slide 26: Expect Continued Strong EBITDAR Margins
Expect Continued Strong EBITDAR Margins • Expect revenue growth to continue Expect EBITDAR margin of – Leveraging unique competitive advantages and fleet investments approximately 16% in 2018 (1) – Air Canada Rouge and an annual EBITDAR margin of – Revenue enhancement initiatives 17% to 20% in 2019
Slide 27: Expect Improvement in ROIC and Growth in Free Cash Flow
Expect Improvement in ROIC and Growth in Free Cash Flow Free Cash Flow − Plan on using excess cash to purchase new aircraft to effectively reduce gross debt − Will continue to leverage Normal Course Issuer Bid (NCIB) opportunities − Will consider other uses of cash as plan matures − Expect cumulativ
Slide 28: Projected Expenditures
Projected Expenditures (1) Remainder of $ millions 2019 2020 2021 2022 2018 Projected committed $290 $1,530 $1,396 $711 $664 expenditures Projected planned but 150 526 279 338 321 uncommitted expenditures Projected planned but uncommitted capitalized 71 176 178 57 97 maintenance(2) Total projected $
Slide 29: Lower Leverage Supports Investment Grade Credit Ratings
Lower Leverage Supports Investment Grade Credit Ratings Expect projected decline in • Creating shareholder value by lowering gross debt and leverage ratio to 1.2 by the leverage remains a top priority followed by shareholder end of 2020 (1) to support distributions via share buybacks drive for inves
Slide 30: Air Canada – A Global Champion
Air Canada – A Global Champion • Proven strategy • Sustainable business model • Improved financial targets • De-risked the airline • Many opportunities ahead, including: – New more efficient narrow-body aircraft – Launch of loyalty program – RFP for new credit card partner – New Passenger Service Sy
Slide 31: Thank you
Thank you aircanada.com
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