Air Canada's (ACDVF) CEO Calin Rovinescu on Q4 2015 Results - Earnings Call Transcript

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Air Canada (OTCQX:ACDVF) Q4 2015 Earnings Conference Call February 17, 2016 9:00 AM ET

Executives

Kathleen Murphy – Director-Investor Relations and Corporate Reporting

Calin Rovinescu – President and Chief Executive Officer

Mike Rousseau – Executive Vice President and Chief Financial Officer

Ben Smith – President, Passenger Airlines

Analysts

Fadi Chamoun – BMO

Walter Spracklin – RBC

Konark Gupta – Macquarie

Helane Becker – Cowen

Turan Quettawala – Scotiabank

Chris Murray – AltaCorp

Tim James – TD Securities

Kevin Chiang – CIBC

Operator

Good morning, ladies and gentlemen. Welcome to the Air Canada’s Fourth Quarter and Full Year 2015 Results Conference Call. I would now like to turn the meeting over to Ms. Kathleen Murphy. Please go ahead, Ms. Murphy.

Kathleen Murphy

Thank you Balanei [ph], and good morning, ladies and gentlemen and thank you for joining us on our call today. With me this morning are Calin Rovinescu, our President and Chief Executive Officer; Mike Rousseau, our Chief Financial Officer; and Ben Smith, President, Passenger Airlines.

On today’s call, Calin will begin by highlighting our 2015 financial performance and our progress made on our strategic initiatives. Mike will then address our fourth quarter financial performance and turn it back to Calin before taking questions from the analyst community. We will start by taking questions from equity analysts, followed by questions from fixed income analysts. As usual, I would like to point out that certain statements made on this call, such as those relating to our costs, financial targets, and strategic plans, are forward-looking within the meaning of applicable securities laws.

This call also includes references to non-GAAP measures. Please refer to our year-end press release and MD&A for important assumptions and cautionary statements relating to forward-looking information, and for reconciliations of non-GAAP measures to GAAP results.

I am now going to turn it over to Calin Rovinescu, Air Canada’s President and CEO.

Calin Rovinescu

Thank you, Kathy, and good morning, everyone and thanks for joining us. 2015 was a banner year for Air Canada on several fronts. We achieved the best financial results in Air Canada's history for a second year in a row by a substantial margin. Adjusted net income of $1.22 billion was above last year’s record by $691 million or 130%, while EBITDA are up $2.534 billion, increased $863 million or 52% from 2014.

We generated a record EBITDA margin of 18.3%, 5.7 percentage points above 2014 and return on invested capital for the 12 months ended December 31 was also 18.3%. Well, we like the rest of the industry benefited from low fuel prices. Our results underscore the effectiveness of our business strategy and enhanced competitive positions. We’ll elaborate later on the call on the significant progress we’re achieving through our various value enhancing initiatives including fleet modernization, international expansion, the roll-out of rouge and our network diversification.

As I said previously, our plan is not dependent on fuel prices staying at current levels, and the transformative changes we've made in recent years provide us with a cost structure, fleet and flexibility to respond, as we did in 2015, to competitive market conditions, fluctuations in the Canadian dollar and to economic downturns. Moreover, we have a proven track record of proactively managing and allocating capacity to meet demand, as we did last year upon seeing signs of weakness in Western Canada; and we will continue to adjust capacity to maximize profitability.

We’re collectively expanding our international services to generate increased profit and are diversifying our network which lowers our risk profile. 2015 revenues from international markets were roughly two-thirds of total revenue. The domestic revenue accounting for only one-third, we are better immunized from weaknesses in Canada than ever before, including weakness in Alberta, which of course itself represents an even smaller proportion of total system revenue.

Looking forward, we are committed to maintaining the strong momentum that we achieved in 2015 and we remain firmly on track to execute in all of our key objectives. We are therefore reconfirming today the three key financial targets established at our June 2015 Investor Day namely an annual EBITDAR margin of 15% to 18% from 2015 to 2018; a year-on-year return on invested capital of 13% to 16%; and reducing our leverage ratio to 2.2 or less by 2018.

These metrics are the main financial indicators we use to measure the continuing success of our long range plan, which is focused on margin expansion and sustained profitability. In addition, we remain committed to reducing our unit costs and are on track to realizing CASM savings of 21%, excluding the impact of foreign exchange and fuel prices, by the end of 2018 when compared to our base year of 2012.

As we have said repeatedly, we’re focused on managing our business to achieve long-term sustainable profitability. We’re not managing on a month by month basis for short-term investors. For this reason and to provide a better understanding of our progress against our financial targets and long range plans as Mike will explain in greater detail later. We’re aligning our traffic and capacity reporting against these key targets on a quarterly basis rather than on a monthly basis. And this morning, we also announced our intent to purchase upto 75 Bombardier CSeries 300 aircraft as part of our narrow-body fleet renewal plan.

The letter of intent contemplates 45 firm orders, with options to purchase upto an additional 30 aircraft and include substitution rights to CSeries 100 aircraft. Deliveries are scheduled to begin in late 2019 and extend to 2022. The first 25 aircraft will replace Air Canada's existing mainline fleet of Embraer E190 aircraft. With the incremental aircraft supporting our hub and network growth creating one of the world’s youngest most fuel efficient airline fleets.

With its high fuel efficiency performance and greater seating capacity, the next generation technology of the CSeries is well suited for our current and future network strategy. And we expect it to be an extremely efficient addition to our fleet. We’ve estimated that the projected fuel burn and maintenance cost savings on a per seat basis of greater than 15% to generate an estimated CASM reduction of approximately 10% when compared to the aircraft it will replace.

The acquisition of the CSeries complements, the acquisition of 61 Boeing 737 MAX aircraft announced in December 2013 to replace the larger end of our mainline narrow-body fleet.

The Boeing agreement provides for Boeing to purchase up to 20 of 45 Embraer 190 aircraft. And the first 25 CSeries as I say will replace the remaining 190. Boeing 737 MAX deliveries are scheduled to begin in late 2017 and extend to 2021, while the CSeries will start in late 2019 and extend to 2022.

We transformed and created solid financial framework for our airline. We have remarkable employees, who are rising for the challenge and I would like to thank and acknowledge their dedication and efforts to deliver exceptional customer service and an excellent financial performance in 2015.

Now I’ll turn the call over to Mike for discussion of our financial performance set for the quarter.

Mike Rousseau

Thank you, Calin, and good morning to everyone. Not only the Air Canada report – record earnings for the year. But it also reported record fourth quarter earnings, which is a further testament to the success of our business strategy.

Excluding special items in both periods, we recorded EBITDAR of $456 million in the fourth quarter, an improvement of $107 million from the same quarter in 2014. Adjusted net income of $116 million or $0.40 per diluted share increased $49 million or $0.17 per diluted share from 2014.

With respect to revenues, total passenger revenues increased $81 million or 3% on traffic growth of 8.6%. A yield decline of 5.5% reflected an increase in average stage length of 2.6%, which had the effect of reducing system yield by 1.5 percentage points, a higher proportional growth of lower-yielding international-to-international passenger flows through our major Canadian hubs. And a higher proportion of seats into long-haul leisure markets led by our lower cost Air Canada rouge line.

We have amended our new passenger revenue management system last June and it is delivering expected results. As discussed in prior calls, this new system is allowing us to optimize our revenue performance by selling on the basis of the passengers’ full trip itinerary rather than on individual flight legs, which is important given our focus on optimizing sixth freedom traffic.

Air Canada continues to estimate this initiative will drive incremental annual revenues in excess of $100 million on a run rate basis. We are excited about the potential of the new system that providing us as we move forward and are on track to implement further enhancements following our initial June cutover date. We are also growing ancillary revenues through multiple channels. In the fourth quarter and for the full year, we successfully increase ancillary revenue per passenger by 10% and 16% respectively.

Turning to cost for the fourth quarter on a capacity increase of 8.4%, operating expenses increased $26 million or 1% from the fourth quarter of 2014. We recorded special items amounting to $31 million in the quarter. These items reflect a one-time labor-related payments totaling $62 million, partly offset by a $30 million recovery related to cargo investigations. In the fourth quarter 2014, we recorded a special charge of $30 million relating to the collective agreement with ACPA.

Adjusted CASM increased 0.8% from the fourth quarter of 2014, in line with the increase of up to 1% projected in our November news release. Without the currency headwind, adjusted CASM would have decreased 3.5% when compared to the same quarter of 2014. And with respect to currency, Air Canada generated sales in U.S. dollars and in other foreign currencies which are converted to U.S. dollars. These totaled approximately $3.1 billion in 2015. Similarly, US-denominated nonfuel operating costs amounted to approximately US$2.6 billion, and U.S. dollar interest costs amounted to approximately US$250 million. Air Canada views U.S. dollar revenues largely a natural hedge against nonfuel U.S. dollar costs.

Fuel expenses totaled US$2.2 billion which resulted in a U.S. dollar net cash flow exposure of approximately $2 billion. In addition, the majority of principal payments on our long-term debt are denominated in U.S. dollars. We have a target coverage ratio of 70% on a rolling 18-month basis to manage the net U.S. dollar cash flow exposure. We hold U.S. dollar cash reserves as an economic hedge against changes in the value of the U.S. dollar. At December 31, Air Canada had U.S. dollar cash and short-term investment of $358 million.

In 2015, a gain of $123 million was recorded, reflecting the change in the Canadian equivalent market value of the U.S. dollar cash and short-term investment balances. In addition, Air Canada realized gains of $164 million through its derivative program in 2015.

As of December 31, Air Canada had outstanding foreign currency options and swap agreements settling in 2016 and in 2017 to purchase that maturity US$2.337 billion of U.S. dollars at a weighted average rate of $1.26 per U.S. dollar. The unrealized gain for these contracts, assuming a 142 spot rate, is $355 million.

Turning to cost guidance, we expect adjusted CASM to increase between 7% and 8% in the first quarter of 2016 when compared to the same quarter of 2015. Approximately 3.5 to 4.5 percentage points of this increase is estimated to result from the weaker Canadian dollar versus the U.S. dollar, with the remainder largely related to our Boeing 777 aircraft being removed from operations for conversion into more competitive configurations in support of our business strategy. As previously announced, we are converting 12 Boeing 777-300ERs and 6 Boeing 777-200LR aircraft into a more cost-effective configuration, adding a premium economy cabin and refurbishing the international business-class cabin to the new Boeing 787 state-of-the-art standards. We expect to complete this conversion in the first half of 2016.

For the full-year 2016, Air Canada projects adjusted CASM to vary between plus or minus 0.5% from the full-year 2015. The value of the Canadian dollar remained at 2015 levels, adjusted CASM for the full-year 2016 versus the full-year 2015 would be projected to decrease 2% to 3%. We made certain assumptions as part of our forecasts which are detailed in the news release we issued this morning. As part of these assumptions we expect the Canadian dollar will trade on average at CAD1.41 per U.S. dollar for the first quarter and for the full year of 2016.

And that the price of jet fuel will average $0.50 per liter for the first quarter of 2016 and $0.52 per liter for the full year 2016. Moving to the balance sheet, we ended the quarter with unrestricted liquidity of almost $3 billion. Free cash flow of $197 million in 2015 increased $744 million from 2014 driven by higher cash flows from operating activities were almost $1.1 billion, partly offset by higher capital expenditures of $314 million as we continue to invest in more efficient aircraft and improving the competitiveness of the existing aircraft. With respect to our Boeing 787 aircraft, we took delivery of six in 2015 for a total of 12 Boeing 787s in our operating fleet today.

We expect to take delivery of an additional nine in 2016. These nine aircraft, as well as two high-density Boeing 777 aircraft scheduled for delivery in the second quarter of this year, have been financed through private offerings of enhanced equipment, trust certificates or double ETCs at an average interest rate of less than 4%.

Moving on to our debt, at year-end adjusted net debt was $6.3 billion an increase of almost $1.2 billion from December 31, 2014. Of which almost $900 million was the result of foreign exchange on our U.S. denominated long-term debt and financing balances. Our adjusted net debt to 12-months trailing EBITDAR ratio was 2.5 times at December 31, down from 3.1 times at year-end 2014. We achieved a return on invested capital of 18.3% in 2015, 620 basis points higher than the previous year and 870 basis points above our weighted cost of capital. This is well above our stated goal of achieving a sustainable ROIC in the 30% to 60% range.

Turning to pension, we contributed $312 million to our pension plans in 2015. As of January 1, 2016, on a preliminary basis we had a aggregate solvency surplus of $1.3 billion in our domestic registered pension plans. We just paid contributing $76 million to our pension plans in 2016. With respect to our previously announced share buyback program Air Canada has repurchased approximately 5.6 million shares since the commencement of the program in May of 2015, the program is in effect until May 28 of this year.

And finally, at December 31, Air Canada had temporary differences in tax loss carryforwards, for which no deferred income tax we’re recognized of almost $4.7 billion. As disclosed today, in news release in order to better align Air Canada’s reporting with its key financial targets. We will report on our progress against our target on a quarterly basis, at the same time as we provide actual traffic and capacity results for the quarter in our very comprehensive quarterly and annual financial disclosures.

We will no longer provide monthly traffic information nor will we provide forward-looking quarterly and annual capacity guidance as we believe such information and guidance without the context of full quarterly review of other key financial metrics risk distorting the proper understanding of our progress against our key financial targets and long range plan.

Air Canada specifically focused on seeking new international growth opportunities to generate increase profit. It also seeks to diversify its network to lower risk profile. International growth being pursued on a lower cost basis primarily through the introduction of new Boeing 787 aircraft, increased seating on our Boeing 777 aircraft and by an increase in flights operated by Air Canada rouge.

In 2016, almost 90% of our planned growth in capacities occurring in international markets. Of which approximately one-thirds aimed at serving new international rouge. Our growth strategy focuses on selective expansion of our network and the development of additional synergies offered by alliances with foreign carriers. We also have the capacity to appreciably increase international traffic through our international gateways in Toronto, Vancouver, Montreal and Calgary.

We continue to see meaningful growth in 6 p.m. traffic through our major Canadian hubs. Demonstrating that we’re successfully capitalizing on sixth freedom potential. And we expect sixth freedom traffic to continue to grow significantly in 2016. We have tremendous flexibility in our fleet implement our strategic plans and to adjust aircraft and capacity to better match demand.

Our fleet renewal program includes Boeing 787 aircraft as well as Boeing 737 MAX aircraft. By mid-2016, we will own outright 22 of our older wide-body and narrow-body aircraft comprised of Boeing 767s, Airbus 330s, Airbus A319. We also have leases for 18 narrow-body aircraft, which expired later in 2016 and 2017. Furthermore, we have the deferral rights associated with Boeing 737 MAX order.

Additional detail of our results for the fourth quarter and full year can be found on our financial statements in MD&A, which are posted on our website and filed on SEDAR this morning.

In closing, I'm very pleased with our record financial performance in 2015 and look forward to building our success in 2016. As we continue to execute on our long term strategy.

With that, I will turn it back now to Calin.

Calin Rovinescu

Thanks Mike, as I said at the start of the call, 2015 was banner year on many fronts. We achieved another step change improvement towards our goal of sustained profitability. From a financial perspective, it's useful to look back over the last five years to more accurately gauge process in the execution of our long term strategic plan.

In 2015, we achieved operating revenue of $13.9 billion versus $10.8 billion in 2010 more than $3 billion more. In 2015, we achieved EBITDAR of $2.5 billion versus $1.4 billion in 2010. Our EBITDAR margin in 2015 was 18.3% versus 13.3% in 2010. In 2015, we achieved a return on invested capital of 18.3% versus 4.7% in 2010. Our leverage ratio was 2.5% in 2015 versus 3.4% in 2010. Unrestricted liquidity amounted to almost $3 billion at year end 2015 versus $2.2 billion in 2010. Our registered pension plans have come from a deficit position of $2.2 billion at the end of 2010 to projected solvency surplus of $1.3 billion at the end of 2015.

Our strategy is also on track in other fronts including fleets, where in 2015 we saw a significant number of fleet inductions and movements. Introduction of the Boeing 787 into the fleet, redesign of existing wide-body fleets into a higher-density three-cabin configuration, and transition of aircraft from mainline to rouge, along with a lower cost to regional connection lift, is allowing us to accelerate our focus on international growth.

Boeing 787s being introduced into our fleet are allowing the airline to operate routes previously operated with 767 aircraft more efficiently. Rouge continues to deliver on all of our expectations as the tool to compete against leisure and low-cost carriers on European holiday and other leisure markets. The rouge brand is emerging as a strong leisure brand, with the improvements to premium cabin on the narrow-body A319 being very favorably received.

On the labor front, we are achieving an unprecedented level of labor stability while executing on our growth plans. In the fourth quarter of 2015, we achieved landmark agreements on ten-year terms with both CUPE, our flight attendants union, and with the IAMAW representing our maintenance airports baggage handling and cargo employees.

Last week, we achieved yet another milestone with our labor group so the ratification of a 12-year contract with our dispatchers represented by CALDA. This is the seventh labor agreement including three others with terms of 10 years that we have reached our unions in the past 18 months. If you consider that government intervention, but needed to arbitrate agreements as recently as 2012, you will agree that this is a remarkable reflection of the cultural transformation that it’s taking place.

In addition Air Canada benefits from increased labor stability at our regional partner Chorus Aviation, which has also ratified a number of long-term labor agreements. Consistent with a culture change underway at our company, Air Canada has become an employer of choice. The rank number 8 internationally in Ipsos Reid most sought after employers and ranked as a top 100 employer in Canada for 2015.

To further engage employees and deliver on a better customer experience. In 2015, we implemented a number of new customer service training initiatives including for our premium agents and other customer service employees. Year-end customer satisfaction surveys indicate an overall improved call center, customer relations performance and improved airport in-flight and premium customer service experience.

Now the implementation of our long-term strategic plan with its sustainable and positive impact on our financial results is tracking favorably. And we're delivering on a permanently lower cost structure, but positively growing our business in international routes. Our full year 2015 results shows that with our growth, we're steadily and progressively expanding margins increasing adjusted net income and improving our return on invested capital, which should create substantial value for shareholders.

With international growth, expanded margins, increased adjusted net income and improved ROIC have become our key focus rather than RASM or load factor. It also bears repeating that decreases in yield and increases in stage length are entirely natural outcomes for long range plan and business model. We are in growth mode. As a result of our transformation, we are confident in our continued ability to continue delivering on profitable growth, despite currency headwinds or economic weakness.

It seems appropriate therefore that I ask Ben Smith, our senior executive responsible for our strategy – our commercial strategy to comment on why we are remaining confident that growth is right for Air Canada. Ben?

Ben Smith

Thanks, Calin. Our transformation plan of our legacy model has been over a decade in the making. The execution in the marketplace at the initial stages of our strategy have proven extremely successful. For many years, due to numerous internal and external factors, the Air Canada brand has been held back from reaching its full potential. One by one as you have heard on this call, we’ve been tackling each determination and innovation. Pension solvency, labor stability with unprecedented ten-year no strike, no lockout contracts with key employee groups, long-term competitive deals with all of our major airport partners, the creation of a competitive leisure subsidiary in the form of Air Canada rouge, fleet renewal and investments in key products and services, and a renewed focus on customer service.

With all of these new strengths and advantages, Air Canada is extremely well-positioned to profitably expand in numerous markets. We intend to maintain our important domestic market position. Capacity additions in the domestic market will be limited to meet local market growth and to feed our expanding international network.

With the power of our new competitive model and world-renowned brand, our expansion is centered on growing our presence in the Canada/USA, Canada/International and international transit markets. Our plan, as already demonstrated by a record 2014 and 2015 financial performance, is to strategically grow where we can achieve margin expansion and continue to build a more sustainably profitable airline.

Air Canada now has a much more diversified route and customer base portfolio in addition to a well-balanced mix of new and older-technology aircraft. These give us enormous flexibility to weather the numerous future hurdles we expect to deal with going forward. Our targets are extremely straightforward, profitable growth using our hard-earned new advantages with a solid plan to build a more valuable enterprise for all stakeholders for the long-term. Back to Calin.

Calin Rovinescu

Thanks, Ben. So, in conclusion, we are confident that the transformational changes we have made to our Company provide us with the ability to withstand whatever headwinds could buffet the industry without losing altitude, including ongoing softness in Western Canada and the eventual rise in fuel prices.

We continue to believe we have the right plan in place to continue towards our goal to make Air Canada a sustainably profitable global industry player for the long-term, and our business model provides us with the flexibility to adjust our strategy if and when warranted.

With that, thank you for your attention, and we will now open it up for questions.

Question-and-Answer Session

Operator

Thank you sir, we will now take questions from telephone lines [Operator Instructions] Our first question is from Fadi Chamoun from BMO. Please go ahead.

Fadi Chamoun

Good morning.

Calin Rovinescu

Good morning, Fadi.

Fadi Chamoun

I sort of understand, given the strategy and the expansion you have, that you would sort of try to focus more on margin and ROIC. But, the ranges that you provided, are sort of wide ranges. And I was hoping that you can maybe give us some more specifics around the – what you see in 2016 being that in that range, because ultimately you are above that range right now. So can give us some growth of how do see 2016 playing out in terms of that range where are we in a middle, higher end of the range that how you see played out.

Calin Rovinescu

Okay. Fadi, it’s Calin here so. Yes, we’ve given that range as a wide range starting of course back to our Investor Day of last year. And the thought process with its approach that we’re trying to convey the message over and over and obviously may have heard us repeat the words long-term several times in our presentation, sustainable profitability several times, whatever it kind of headwind buffet us several times. We only do that is that obviously we acknowledged that weakness in Western Canada, but we’ve also finished. I telling you that two-thirds of our revenues now are based on international markets and therefore, one-third of Canada and obviously Alberta is the small portion of that one-third.

So when you look at that picture, we have expectations of keeping our ROIC as highest as achievable within that target range and we’re looking at that as a long-term strategy. We hope it will be strong as possible, but we’re not going to narrow the range what we gave Investor Day.

Mike Rousseau

Fadi, it’s Mike. Just to further Calin’s comments, we don’t leave those ranges are very wide given the nature of this industry frankly. In 2015, we had a very strong ROIC. In 2016, we’re starting to add or increase our capital expenditure program – which will have a bit of negative impact on ROIC in the short-term, but not the long-term. And so that’s why that range exist. On the EBITDA our side, although we over achieved the range in 2015, again, our belief that is that range should support a much higher valuation and certainly higher than historical standards. And so we’re comfortable at this time on both those ranges.

Fadi Chamoun

Okay. And so I know, you are not providing specific capacity for this year. I guess just looking at your fleet plan, one could fed up come up with a pretty sort of close number, I guess to where this year look like. So if you can give us an idea about what do you have in the fleet that you can take out of that fleet or sort of how much more, how much flexibility you’re having capacity specifically as for [indiscernible] to sort of manage this uncertain demand environment?

Calin Rovinescu

So Fadi, yes, it’s a good question. So basically, that is one of the messages to that we repeated over which is to say that as a result of the steps we’ve taken on fleet as a result of only more of our aircraft, we have much greater flexibility than ever before to make some fairly short-term decision respecting fleet. Mike covered it a little bit in his remarks on this call, but Mike, why don’t you resummarize what you said before?

Mike Rousseau

Sure, Fadi, great question. And something that we focus on and, frankly, in a much better position than we ever have been. We have 23 aircraft by middle of this year that we will own outright, unencumbered, both wide that we will own outright, unencumbered, both wide-body and narrow-body. And that probably represents 3% to 5% capacity, which we could sit for no cost. Secondarily, we have 18 leases that are coming up for renewal in the next year and a half. And so if we so chose, we could return those planes, taking out another couple points of capacity at least.

And that is even before we have reduced utilization. Because back in 2009, when we had to adjust capacity very quickly, we lowered utilization, which is, in fact, the way of reducing capacity, but not as effective as sitting unencumbered planes or returning leases. So like I said initially, we are in a much better position with 40 of our planes to reduce capacity in the short term.

Calin Rovinescu

We also have deferral rights with respect to new deliveries from Boeing.

Fadi Chamoun

Okay. Thank you.

Calin Rovinescu

Thanks, Fadi.

Operator

Thank you. Our next question is from Walter Spracklin with RBC. Please go ahead.

Walter Spracklin

Thanks very much. Good morning, everyone.

Calin Rovinescu

Good morning, Walter.

Walter Spracklin

So let’s start on the ability to adjust capacity. Obviously there has been weakness in Alberta and possibly in other areas. What action have you taken, or what is the nature of the action that you have taken thus far? In other words, you have taken capacity out of Alberta. We’ve seen some of the flight cancellation of certain routes. Have you redeployed those aircraft into other areas at this point? Have you idled any unencumbered assets? And are you making a decision to defer any aircraft as a result of the weakness you are seeing in certain regional markets?

Calin Rovinescu

Okay. So Walter, yes, we reacted very quickly, as you know, to weaknesses that we saw in Western Canada and Alberta. We did it before our other domestic competitors had done likewise, and we moved some capacity out of Alberta last year. At this stage, we have not deferred any deliveries. And this is – when we talk about the resiliency of our plan, it is because of our capability to reallocate capacity and sort of flex the muscles of our international network in a way that we were not able to before. And I think that’s what we were talking about flexibility, not just fleet flexibility, to be able to fit airplanes. It’s also flexibility to be able to redeploy to many, many other markets, which has been done and which we continue to be quite confident in looking forward to 2016.

Walter Spracklin

And so in those other markets where you have redeployed those aircraft, is it because you experienced greater demand than expected? Because presumably you would have had plans to grow in those markets anyway, but now you’ve had extra aircraft or capacity available from Western Canada. I just want to make sure we are not just piling it in to another market just because it’s – somewhere else is weak, and it is really because we’re seeing better-than-expected demand in what you rightfully point out is more diverse, more diversified international route options.

Calin Rovinescu

Yes. Ben can comment a little bit on our commercial strategy without going beyond what we are able to say on a call for confidentiality and competitive purposes. But, given the levels of profitability that we are seeing, we are not hesitating to pull out of markets. You saw we pulled out of JFK, for example. We don’t hesitate to pull out of markets that we are not seeing the adequate returns. But Ben, go ahead.

Ben Smith

Just to reiterate what Calin and Mike said, as everyone knows we are seeing, along with all other operators, softness in the Alberta markets – specifically, Edmonton, Fort McMurray and Calgary – and we have made the necessary adjustments to maintain profitability. Definitely we are not piling on capacity to reduce margins in other markets. We’re not doing that. With the tools that we have, we have numerous opportunities both trans-border to the U.S., internationally, that we are, early enough, still following the strategy that we have got, which is to ensure that we are expanding margin as we move forward.

And with all the flexibility that we have, which we have not had to exercise yet, if we run out of those opportunities, we will reduce either through utilization or grounding of aircraft or deferral of leases or deferral of new orders. We will go even further. But as of yet, we actually have plenty of new opportunities to deploy these assets throughout the network on a margin expansion strategy.

Calin Rovinescu

And actually Walter, Calin again, when you look back – when we talked about this 2015 margin expansion, redeployment, other routes – so in 2015, I just want to remind you of the international routes we launched. So we had a record year of profitability, record year of margin, while we launched Vancouver/Osaka, Montreal/Venice, Toronto/Amsterdam, Montreal/Mexico City, Toronto/Delhi, Toronto/Dubai, and added double daily service to Montreal/Paris and increased frequencies to Athens and Barcelona. So when you look at the international picture, we launched a lot of international routes. We did it profitably. We made an investment in our network, and we took capacity out of a market that we did not think was the right market. So I think that the word flexibility, when we talk about the transformational things that have gone on here, flexibility should be pretty high up there along with words like long-term.

Walter Spracklin

That’s great color. Appreciate that. Moving on to your CapEx program, one of the – let’s call it the bearish views on the future for Air Canada is the intensity of the current CapEx spend and how it is at a high level and is likely to stay that way for some time. Obviously with the CS300s coming on, that is going to layer on another CapEx level into 2019 and 2022. So, to offset that, perhaps you can put that into context. I hear you when you are saying, Calin, we are investing for growth. Then you mentioned this was an opportunity we could not take prior years, and now we are taking advantage of that.

So it feels like this CapEx program is a little front-end loaded, heavy weighted to take advantage of the opportunity that has existed that you were not able to take advantage of. As a result, is there a way to contextualize the CapEx? Can you – I don’t know Mike, if you can give us normalized kind of what you view given your current fleet size, what replacement CapEx might be on a run rate basis so that we can compare that to the current CapEx and get some indication of what your cash flow generation would be able to be once we are through this CapEx spend.

Mike Rousseau

Good morning, Walter. It’s Mike. That’s a very fair question as to what our normalized capital program is per year, and a very difficult question to answer. I expect a number that the market can use is, aircraft and non-aircraft, something around $1 billion a year, because we will have to add – assuming growth, we will add some new planes or replace some planes on an ongoing basis. And then on top of that, we have a couple hundred million dollars a year of non-aircraft capital for technology, maintenance and other strategic initiatives.

Walter Spracklin

Okay, that’s perfect. Really appreciate that. Last question here on yields. Are you expecting – I think you said 1.5 points of impact from the stage length and rouge on yield. Is that the number we should be using for 2016 when we try to think, okay, mix effect? And related to that, are we seeing any aggressive fare competition or fare discounting that is abnormal in your view or unexpected compared to where we were maybe three months ago?

Mike Rousseau

Walter, it’s Mike again, and maybe we will ask Ben to provide some more color on the second part of your question. Regarding the stage length, stage length increase in 2016 will be similar to 2015. Because, again, our strategy is going to be 90% of our capacity will be international. And so you can use 2015 as a proxy for 2016 on stage length and the impact on our yield. Regarding yield in the marketplace right now, I think it’s well-known that there is a fair amount of capacity being put in Canada by our competitor in the short-term. I think that will probably be mitigated somewhat post Q1. But certainly in Q4 and Q1, a fair amount of capacity was added to the Canadian marketplace, which affected and will affect yields in that marketplace. Ben?

Ben Smith

Sure. I would just add to what Mike said. Yes, we saw relatively large amount of capacity added to the domestic market in Q4. And so far in Q1 we have reacted much quicker than our domestic competitor to buffer that impact. And also, we are less exposed, particularly in Alberta. And we will continue to manage – as Calin mentioned, we’ve been through lots of ups and downs over the last couple of decades dealing with some very severe downturns in various parts of our network, and we intend to continue to meet our financial objectives. So if we see areas that are not meeting our target objectives, we will move that capacity.

Walter Spracklin

So right now, discounting only happening in Canada predominantly and expected to be limited to fourth quarter/first quarter?

Ben Smith

Yes, we saw from greater than historical discounts taking place in particular in and out of Alberta over the last few months, not unexpected. The rest of our network, the rest of domestic, transporter, international, both Atlantic and Pacific is very competitive as usual, but nothing unusual.

Walter Spracklin

Okay, that’s perfect. Thank you very much.

Operator

Thank you. Your next question is from Konark Gupta from Macquarie. Please go ahead.

Konark Gupta

Good morning. Thanks and congrats on a great quarter, guys.

Mike Rousseau

Thank you. Thanks, Konark.

Konark Gupta

So my first question, Mike, is on the yields. In the fourth quarter, the yields declined by I think 5.5%. So would you be able to break it out for me, please, in terms of stage length, FX, fare mix, surcharge, same-store pricing, et cetera? I can see that the stage length had a negative impact of 150 basis points, and currency probably added about 330 basis points to that yield. So what are the other moving parts in terms of fare mix, rouge versus premium? And fuel surcharge as well as same-store pricing? Thanks.

Mike Rousseau

Good morning. A difficult question; you hit all the elements that impact our yields. Certainly stage length is the easiest to identify, and we have identified that for the market in our press release. Certainly foreign currency was a benefit to yield. I don’t know if it was 300 basis points. I don’t have that number off the top of my head, but we can certainly get that number to you. The rest of it is really mix of customers. As we are growing internationally and primarily through rouge, we’ve got a higher percentage of leisure customers. And although our business-class cabin held its own year-over-year, the vast majority of our growth is leisure or economy, that cabin. And that is just lowering the overall average. So that was the other key ingredient.

And then fourth but not least, as Ben and I spoke about on the previous question, the Canadian market was a little bit more competitive in Q4. And you – when you get through our 100-page MD&A, you will see some of the metrics for Canada were a little bit softer than in Q2 and Q3. And we obviously believe that will be rectified over the next little while, certainly if there was an impact from Western Canada in Q4.

Konark Gupta

So then in terms of fuel surcharge, Mike, assuming the fuel or oil price does not decline significantly in 2016 versus 2015, would you anticipate sort of a similar trend in fuel surcharge decline in the markets like Brazil and some other Asian markets?

Mike Rousseau

No, there’s four regulated markets that dictate fuel surcharges for us. Both came off in, I think, in Q2 of last year, so we should come full circle on that in the next quarter.

Konark Gupta

I see. Okay, thanks. And just in terms of trends on the yield side, obviously you mentioned the domestic market, which probably had kind of significant deterioration in the fourth quarter. But it looks like the trend improved in Pacific, and they kind of softened in the other or basically Latin American/Caribbean markets. What’s happening in Pacific and other markets?

Calin Rovinescu

There’s a lot going on, on the Pacific. As you know, Delta is in the process of moving a lot of capacity from Tokyo to Seattle as they transfer from Narita to Seattle. We are seeing some effects of that. And also, a big influx of new technology equipment mostly in the form of the 787. So there’s a lot of moving posts going on there. We are very pleased with our performance.

Yes, you are seeing some yield declines, but the advantages – in particular, cost advantages of the 787 are far outweighing anything we are seeing in terms of yield. So we are seeing the margin expansion that we are looking for. On the Atlantic, the benefits of our A++ joint venture continue to pay huge dividends, and that’s why you are seeing us so confidently add this capacity. The power of our partner Lufthansa’s sales force in Europe and the United States is enabling us to do things we would not be able to do on our own, and, again, driving disproportionately higher margins in those areas. South America, obviously we all know Brazil is having some challenges, but we are relatively – our exposure there is much less than some of the big U.S. majors.

Mike Rousseau

And I would add one thing, Calin, here, which is that we talked about Canada itself. Because of our mix – and as I said at the beginning, because right now we only have about one-third of our business now is in Canada, for us the exposure to Canada is not significant or is not as significant as it was in the past.

And secondly, Canada is not as toxic as the media would have you believe. That is extremely important to hear. Canada is – from the airline’s perspective, we are just not seeing that. Now, our exposure is not the same as some other of our competitors. But it is simply not as toxic, and we are seeing a lot of inbound tourism, of course, because of the lower Canadian dollar that we have said in the past attracts tourism. And you have seen some very bullish tourism numbers that have come out of the tourism authorities for the greater year-over-year visits to Canada from the United States and elsewhere.

Konark Gupta

Okay. Thanks, Calin. And Mike, quickly, one more question on the CASM side. I can see your guidance for the first quarter is obviously for up, I think, 7% to 8%; and for the full year, it is kind of roughly neutral. What are the various moving parts in addition to depreciation, maintenance and employee benefits? I am kind of looking for impact of Canadian dollar and maybe other kind of moving parts in there. Thanks.

Mike Rousseau

The Canadian dollar has an impact of roughly 300 basis points, a little bit higher in Q1. But for the year, roughly 300 basis points. And then in Q1, we have a unique situation where many of our 777s are in the shop going through a reconfiguration program, so they are not observing some costs. So that explains the other half of the increase in Q1.

Konark Gupta

Okay. Thanks a lot. Thanks, Mike.

Operator

Thank you. Our next question is from Helane Becker with Cowen. Please go ahead.

Helane Becker

Thank you very much, operator. Hi, everybody. Thank you very much for the time. So my first question is, listening to the decisions you are making with respect to potential margin accretion, and I am just kind of wondering why your EBITDAR margin has been declining over the next two years instead of increasing.

Mike Rousseau

Well, obviously we would like to continue to expand margins, and that is our objective. We did not want to come off our June 2015 Investor Day goals at this point in time until we get a better understanding of this new fuel environment. And I think most airlines are in that situation at this point in time. Certainly the fuel environment has helped to some degree. It has not been a significant – it has been some part of the overall increase year-over-year, and so we are just being conservative and waiting for this fuel environment to stabilize, to clarify, to see what impact that might have on our margins going forward.

Helane Becker

And okay. And then [Multiple Speakers]

Mike Rousseau

And, frankly – sorry to interrupt. It’s Mike again.

Helane Becker

That’s right.

Mike Rousseau

And we obviously a lot of airline executives are frustrated with the stock price, the appreciation or what’s happened in the market over the last six months. And, frankly, a 15% to 18% EBITDAR margin should support a much higher valuation for Air Canada. And so, for a number of reasons, we are going to stay with that number until we get better clarity as to how the fuel environment is going to change. And then we will take the opportunity to update it when we feel it’s appropriate.

Helane Becker

I don’t disagree with the idea that people are frustrated with the stock price. I think your shareholders are as well. Today in an environment where the broad market is up, your stock is down 11%. I think part of that is the decision to do less disclosure rather than more disclosure. But we can talk about that later. The other question I had was with regard to the C-Series. Was there any government pressure brought to bear on you to be the major flag carrier order for that aircraft?

Mike Rousseau

No, there wasn’t.

Helane Becker

Okay, fair enough. And I guess that’s it. I have a lot more questions, but I will do them off-line. Thank you.

Mike Rousseau

Thank you.

Operator

Thank you. Our next question is from Turan Quettawala with Scotiabank. Please go ahead.

Turan Quettawala

Yes, good morning. I guess my first question, just Mike, you talked about the stage-length impact on RASM. Can you give us the stage-length impact on CASM?

Mike Rousseau

Again, I don’t have that number off the top of my head. We can do that off-line, though.

Turan Quettawala

Great. Thank you.

Mike Rousseau

It will be slightly less than the stage-length impact on the RASM.

Turan Quettawala

Fair enough. Okay, that is helpful. Thank you. I will take it off-line. And then I guess the other question, I also had a C-Series question. Just wondering, can you talk a little bit about from Air Canada’s perspective why would you order that plane right now, just considering I guess the skyline that Bombardier has for that aircraft. And I guess the risk that you might see on the aircraft here. As well, maybe you can talk a little bit about PDPs and how that affects your CapEx number.

Mike Rousseau

I will speak about PDPs first, and then Calin will probably take the initial part of your question. PDPs are fairly immaterial for the next couple of years. Certainly I think over the next couple of years it’s – in cumulative aggregate, is less than $100 million.

Turan Quettawala

Thank you.

Mike Rousseau

Then the capital will start increasing in 2019. We only take one plane in 2019, and then we – the plan is to take 14 planes in 2020.

Calin Rovinescu

So it has been matched with our capital spending post the bulk of the 787, it’s 737 being completed, et cetera. Anyway, in terms of the airplane itself, we think it’s a very good airplane. We think it’s one that suits us extremely, extremely well. We are happy with our MAX order, but we think that the MAX airplane performs better at the higher end of the size range, and that is the C-Series. It is much more compelling at the lower end of the size range, so it gives us that added benefit. And from a timing perspective, it actually does fit in well with the end of the useful life of the 190s as far as we are concerned. Ben can also add in terms of – we think very highly of this airplane.

Ben Smith

Yes, just echoing with Calin said, we believe the plane is absolutely fantastic, and even more so for an airline of our size with the geography of Canada, coupled with the MAX and the 787s that we have will put us in a very competitive position. Obviously we had to get the right deal to make sense for Air Canada, which we did. It’s fantastic news for us, it’s great for Bombardier and we are really excited.

Turan Quettawala

So Ben, apart from the replacement of the 190s, where would you sort of put the incremental fleet? And I guess that means that your capacity will keep on rising, right, as we go through the 787s and then the MAX and then the C-Series. Is that a fair way to think about it all the way to 2022?

Ben Smith

Yes, we are not going to disclose at this point where we are going to deploy the airplane. But I think how you can think about it is, Canada being such a unique size country and how it is positioned in the North American market in the middle of all these very big traffic flows, having a combination of 787s, 737 MAXes and C-Series will enable us to offer a lot of unique city pair combinations that will put us in a great spot to compete globally. So through our main hub in Toronto, as well as our secondary hubs in Montreal and Vancouver, there is going to be plenty of opportunities for all three of those airplanes. And the combination of the three is going to make us a much more powerful force.

Calin Rovinescu

And just to further Ben’s comments regarding long-term capacity, one, we have a tremendous amount of flexibility. The 787 program will essentially end in 2018, and then the 737 program will ramp up. But, again, our initial order, our firm order for 737s are 61, which replaces the existing narrow-body fleet. And so we will decide at that point in time as to where the markets are growing, as to whether we expand or whether we just stay with 61 planes. And, again, although the C-Series 300 is going to be slightly larger from a seat configuration point of view than the E190s, it’s not adding a lot of capacity post 2020.

Turan Quettawala

That’s helpful. Thank you. And I guess maybe one more question, just a clarification. You talked about the domestic, I guess, exposure that Air Canada has. Is it possible to share with us like what the total point-of-sale Canada revenue is? I know you said U.S. dollars was about 20% or so, but.

Mike Rousseau

Okay. It is changing. As we diversify more internationally, that number is coming down. But it’s in the mid-60s probably at this point in time.

Turan Quettawala

So mid-60s is point of sale Canada.

Mike Rousseau

Yes.

Turan Quettawala

Thank you very much. That’s very helpful.

Operator

Thank you. Our next question is from Chris Murray with AltaCorp. Please go ahead.

Chris Murray

Thanks, guys. Good morning. Just maybe thinking about the domestic and the trans-border capacity growth – and I guess maybe a different way to try to figure this out, if I look at your fleet plan on narrow-body including removing the ERJs, I am just trying to get a sense of – if I count seats year over year, it looked fairly flat to almost negative. But are there any – I think there’s also some moving parts with – you’re bringing some wide-bodies into the domestic network. Just when we are kind of doing the planning for next year, can you give us an idea of what’s going to happen in the fleet and some of the timing around that, around call it Canada and the trans-border market?

Ben Smith

Sure, it’s Ben. Yes, that is a great question. And that – how I answer this is to show how much flexibility we have. We are able to use internationally configured airplanes on many of our domestic trunk routes or trans-border trunk routes, and those are in the form of, say, Toronto to Vancouver, Los Angeles to San Francisco, where you see 777, 787s flown by us in a very competitive way. Where in the past in their previous configuration, that wasn’t possible. So we have a lot of flags to move long-haul airplanes into the North American market either way.

So that gives us a lot of flexibility. And then, the A321, which is still going to be in our fleet for a number of years, awaiting the 737 MAX, is also extremely competitive. And then with the new deal that we have with our pilots, we have the ability to increase the number of 76-seat regional jets at our various regional partners. So, going all the way down to that, through – starting with the 76-seat jets, up through our narrow-body aircraft, all the way up to international airplanes, all those airplanes have some opportunity to be deployed in North America. And we will keep that flexibility depending on how the various markets and the various opportunities play out over the next year or two years. So, today, we have a fixed plan where we have to operate a certain type of airplane on a certain route. That is not the case with us.

Chris Murray

Okay, so if I look at the narrow-body, just if I add up the seat counts, essentially you are a bit negative. So is it fair to think that the wide-body is going to be the swing capacity for North American trans-border? Is that a good way to explain it?

Ben Smith

That’s one way, but we also have the option as we take delivery of our 737 MAXes, we can keep some of that Airbus narrow-body longer as we’ve got that flexibility as well. So you can see this summer, I will give you an example – it’s in the – we are selling it today, the 18 flights we’re selling Toronto/Vancouver, 7 of them are going to be operated by internationally configured wide-bodies.

Chris Murray

Okay, great. And then just maybe – I don’t know which of you guys want to take this one, but just looking at some of the risk profile items and sort of the – some litigation items, I guess one of the things that was interesting, and I think you just press-released this now, can you just maybe give us a little bit of discussion around the maintenance agreement that you seem to have struck with the province in Quebec? And as well Mike, if you can just – does the right-up, I guess, or the recovery of the cargo investigations team mean that that is finally wrapped up as well?

Calin Rovinescu

Yes, so it is Calin here. First of all, we have settled the – this Avios litigation with the government of Quebec. That’s an important agreement because obviously it goes to the flexibility that we have in terms of maintaining aircraft where it is that can be maintained. And the quid pro quo is that we would agree to maintain the C-Series airframe heavy maintenance in the province of Quebec when we start maintaining it, which of course will be after we take delivery of the aircraft and after it is needed to be put into heavy maintenance. So, many years down the road. And this – an important driver of helping establish in Quebec a center of excellence for the maintenance of the C-Series, which this – our undertaking will provide some commitment for it, of course.

We are very pleased to have settled that Avios lawsuit and the uncertainty that it could have brought. As far as the cargo situation, we did receive the payment, the settlement. The – we were – at the end of the day, our position was upheld. Got the money back and booked it. Now, in terms of additional remedies, processes, these things are never really at an end completely because you never know whether some of the regulators there try to overturn the most recent decision. But as far as we are concerned, we are no longer type of contingent liability against that particular case. There may be some remaining cargo things in other parts of the world, but against that European situation, contingent liability is removed.

Chris Murray

Okay, great. Just turning back to the maintenance, does that obligate you in any way to set up kind of an Air Canada-owned operation? Or is that going to be contracted through Bombardier or a third party?

Calin Rovinescu

No, it will be contracted through a third party. Our expectation is that there will be a lot of interest, and that there are some very capable international maintenance operators who would be invited to bid on it. It will be third-party work done in Quebec by the most capable and price-competitive players.

Chris Murray

Okay, great. And then just my last question, just if you can – if you can update us on the status of your discussions with Air China and the joint venture that you have talked about before.

Calin Rovinescu

Yes, we are – those discussions are ongoing. Lots of submissions have been made to the competition regulators to make sure that everyone is informed as to our views on the competitive impact on that. And we hope to make a determination. It is taking a bit longer than we had hoped. Unfortunately, we don’t control the regulatory process. We hope to make a determination with Air China over the coming months.

Chris Murray

Okay, thank you.

Calin Rovinescu

Thanks, Chris.

Operator

Thank you. Our next question is from Tim James with TD Securities. Please go ahead.

Tim James

Thanks. Good morning. A question on the maintenance expense, the guidance for 2016 and the fairly significant increase there. I was wondering Mike, if you can talk about what portion of that is sort of related to end of leases, and if I could call them kind of nonrecurring maintenance expenses. I am just trying to get a bit of a sense for what is a more normalized rate on a go-forward basis.

Mike Rousseau

Good morning, Tim. First of all, the biggest component of that increase is foreign exchange. I think 40% to 50% is foreign exchange impact, because, again, most of our maintenance expenses are incurred in U.S. dollars. There is some element of that increase – I would say probably 10% to 20%, which is end-of-lease type issues where we don’t have as many this year as we had last year. And the rest of it, frankly, is our continuing switch to power-by-the-hour type contracts, which stabilize the cost over the long term and obviously save some money over a longer period of time.

Tim James

Okay. So just the 10% to 20% that you mentioned related to end of lease – so does that mean that of the dollar increase, approximately 10% to 20% of that is an increase in that comparable number to 2015? Is that right?

Mike Rousseau

I think that is a fair proxy.

Tim James

Okay. Thank you. And then just looking at the currency weakness here in Canada, we can all do our math on the impact on your cost structure. Can you talk about whether you believe – maybe this is a question for Ben, whether the Canadian dollar weakness is impacting demand and actual bookings for obviously primarily international travel?

Ben Smith

Yes, we are seeing a little bit of softness on some routes, say, to Florida, Arizona, Hawaii, Vegas. An interesting thing that I am noticing is the actual length of trip, places like Vegas and New York, I think people are still going to Disney and places like that, but they are maybe shortening by a day or two. So our perspective, we still get the air fare. Maybe for the hotel or the car rental agencies, in those places, they are seeing a lessening. So I think a lot of people still want to make the trip. They just want to make sure it is within their budget. So we actually have a little bit of softness. But where we are seeing a big increase is our U.S. inbound tourism, especially Asian inbound tourism and forward bookings on European inbound into Canada. And also, we are expecting to see an increase in domestic travel as well for people that may have gone internationally in the past.

Tim James

One more question on that note. Maybe this is impossible to answer. Do you believe in terms of your revenue that a weaker Canadian dollars is still a net negative? Or do you feel that the inbound benefits more than offset any outbound costs?

Calin Rovinescu

No, we like the inbound benefit for sure, and these are all mitigating circumstances. But, you know, if I could have sort of a dream environment of a low fuel price and a high Canadian dollar, I would take that any day of the week.

Tim James

Yes, okay. And then just one more question regarding revenue. Growth slowed to 2.5% year over year in the fourth quarter. It was 5.9% year over year in the third quarter. I assume some of that slowing, a portion of that, can be attributed to a more challenging environment coming from the resource sector in Canada. Is there any other kind of key components of the overall revenue equation for Air Canada that were weaker on a year-over-year basis in Q4 relative to the trends that you saw in Q3?

Mike Rousseau

Tim, no. It’s Mike. No, I think, as we talked about a couple of times on the call today, it was really – the one that kind of stands out is Western Canada.

Tim James

Okay. Thank you very much.

Operator

Thank you. Our next question is from Kevin Chiang with CIBC. Please go ahead.

Kevin Chiang

Hi, thanks for taking my question. Maybe just a follow-up on Tim’s question on travel patterns with the weaker CAD. I think back in your investor day you mentioned a stretch goal for your sixth freedom in terms of market share being 2.5%. I’m just wondering is that stretch goal – do you view that stretch goal being more attainable here with the lower CAD? And do you raise your normalized market share now given where the CAD is today versus where it was, say, six, seven months ago?

Ben Smith

Excellent question, Kevin. It’s Ben. We are actually in the middle of that analysis right now to see what do we want to alter our internal targets for the big summer season. So we will hopefully be able to report out on that later on in the year. But we do preliminary things that it is going to be an interesting opportunity for us to pursue.

Kevin Chiang

Okay, that’s helpful. And then maybe just secondly on your decision to adjust your disclosure on capacity, you noted on the call a few times here just a valuation disconnect between yourselves and what you think you should trade at. I just wonder how you reconcile that view with the fact that you are reducing your disclosure. That would seem to increase the volatility in terms of your forecast and earnings, at least our ability to forecast that. Were there any thoughts internally of maybe providing more disclosure?

It seems like you think we lack context when we get the monthly data. Was there any debate internally to maybe provide more financial disclosure, to provide us with the context we need, or do you think we lack to better understand how you are achieving your five-year targets here?

Calin Rovinescu

Okay. It’s Calin here. I will start and then I will let Mike join in as well. I think you’re touching on something extremely important here, Kevin. And as I said several times, you notice I put a lot of emphasis on a few words here. I put emphasis on our long-term strategic plan term strategic plan. I put emphasis on long-term-ism, sustainable profitability, margin expansion gave you a retrospective over the last five years and gave you a picture as to what we expect to do over the next five years.

And my expectation, to be very blunt, is that we are not running this Company for the benefit of short-term investors from a day-to-day basis or from a month-to-month basis. Due respect to one of the other analysts, who commented earlier as to our decision on this and the stock price, we will see what the stock price does but if short-term investors don’t like this, I can encourage them to leave. We are running this Company for the benefit of our long-term stakeholders. And that means we are going to be providing information that we consider relevant to how we manage the company, not in terms of what somebody would like to see on a day-to-day basis or a month-to-month basis.

Not to mention the fact that some of that information, quite frankly, we believe is inappropriate signaling to the competition in any event. And so, we are in an environment here where we are saying we’ve reiterated the Investor day targets. When we were there in June of last year, we made some very clear messages to the financial community as to what we expect for the future.

Now that we are here in the month of February, with all of the noise around the weakness in Canada, around all of the noise around the so-called toxicity of Canada, we have declared a record year, and we are reiterating the very same financial objectives that we indicated in June.

So my expectation is that if we attract greater long-term investors, that should result in less volatility, not more volatility. And we will have the analysts starting to think about this in the way that the – maybe pension funds, BlackRock – Larry Fink and BlackRock came out very much in the discussion about the long-term-ism that should be the focus of companies that have a real perspective.

CPPIB in Canada pension fund, same thing. Mark Weinberg, same thing in terms of encouraging analysts and companies to companies to deal with the businesses over the long-term. So we are coming off of our strongest year in our history by a country mile. And we are indicating now that we are going to be measuring the things that we consider relevant to building our objectives that we have approved. So, we would encourage you to continue to assess it.

We have given a ton of disclosure in our AIF. And in our MD&A, we provide a lot of information. We will provide a lot of information quarterly. We are going to increase the amount of visibility on these targets that were our Investor day targets, and we will have another Investor day when we can talk about it more at some more at some point in the future.

Kevin Chiang

That’s helpful, thank you very much.

Calin Rovinescu

Thanks, Kevin.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Murphy.

Kathleen Murphy

Thank you, Valerie, and thank you, everyone, for joining us on our call today. Thank you very much.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

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