Air Canada (ACDVF) CEO Michael Rousseau on Q3 2021 Results - Earnings Call Transcript

Air Canada (OTCQX:ACDVF) Q3 2021 Results Conference Call November 2, 2021 8:00 AM ET

Company Participants

Valerie Durand - Head of Investor Relations and Corporate Sustainability

Michael Rousseau - President and Chief Executive Officer

Amos Kazzaz - Executive Vice President and Chief Financial Officer

Lucie Guillemette - Executive Vice President and Chief Commercial Officer

Craig Landry - Executive Vice President and Chief Operations Officer

Conference Call Participants

Chris Murray - ATB Capital Markets

Savanthi Syth - Raymond James

Walter Spracklin - RBC Capital Markets

Konark Gupta - Scotia Capital

Helane Becker - Cowen and Company

Tim James - TD Securities Inc.

Cameron Doerksen - National Bank Financial

Operator

Good morning, ladies and gentlemen. Welcome to the Air Canada Third Quarter 2021 Conference Call. I would now like to turn the meeting over to Valerie Durand. Please go ahead Ms. Durand.

Valerie Durand

Thank you, [Vanili] (Ph). Welcome and thank you for joining us on our third quarter call of 2021. With me this morning are Michael Rousseau, our President and Chief Executive Officer; Amos Kazzaz, our Executive Vice President and Chief Financial Officer; Lucie Guillemette, our Executive Vice President and Chief Commercial Officer; and Craig Landry, our Executive Vice President and Chief Operations Officer.

On today’s call, Mike will begin by providing an overview of the quarter. Lucie will touch on travel demand our network, Aeroplan and Air Canada cargo. Amos will provide additional details on our financial performance fleets and liquidity and then turn it back to Mike.

We will then be available until 9:00 A.M. for questions from equity analysts followed by questions from fixed income analysts. And of course, we will remain available for additional questions after the call through our Investor Relations team.

Before we get started, please note that certain statements made on this call maybe forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures. Please refer to our third quarter press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and reconciliations of non-GAAP measures to GAAP results.

I will now turn it over to Mike.

Michael Rousseau

Great. Thank you, Valerie, and good morning to everyone and thank you for joining us on our third quarter call. Although the pandemic continues to impact our industry, the results from the quarter clearly demonstrate that our airline is making great progress and is now in recovery mode. First and foremost, this is due to the hard work of our employees and their commitment to taking care of our customers.

Along with the task of restoring our business, our employees have also had to contend with industry-wide challenges as we rely on multiple partners in the air transport ecosystem to bring our complex industry back online. I thank our employees and commend them for their determination to rebuild our business. I’m very proud to see the win awards and global recognition for their efforts.

We are very encouraged by the favorable revenue and traffic trends in the third quarter. There were strong increases in key passenger geographic segments, record cargo performance, surpassing one billion in revenues on a year-to-date basis, and significant improvements in both Air Canada vacations and Aeroplan.

Along with these positive tailwinds, we control costs effectively. The net cash flow of 153 million we reported for the quarter was materially better than expected and greatly improved from the third quarter of 2020. We cut our operating loss by more than 50% from a year-ago to 364 million, and our operating revenue almost tripled to 2.1 billion.

Another major accomplishment in the quarter was the completion of a series of financing transactions in August, which yielded 7.1 billion in gross proceeds. This provided a significant amount of additional liquidity, lowered our costs of borrowing and extended the maturities of our corporate debt, giving us greater flexibility.

With these new financing agreements in place, we ended the quarter with more than 14.4 billion of liquidity, which about 9.5 billion is available on our balance sheet. Apart from the practical benefits of having these resources available, our balance sheet liquidity and the confidence it conveys is a core element of our long-term prospects as we rebuild our airline.

Moreover, we continue to rebuild our network. We announced new domestic U.S. Sun and international services, and more recently, are returned to popular seasonal destinations in Europe next summer. Another very positive and welcome indicator of the recovery is that we have already recalled more than 10,000 employees since the start of the year.

Before I turn it over to Lucie, in addition to again thanking our employees and the management team, I would also like to thank our valued customers for their loyalty. We are delighted to be flying them again and we look forward to welcoming many more of them back onboard Air Canada. Thank you and over to you Lucie.

Lucie Guillemette

Thank you, Mike. To begin, I too would like to thank our passionate employees who work tirelessly as we welcome our customers back. And we are recognized with several distinction, had a six year Skytrax awards, including for COVID Airlines Excellence, best airline staff in North America, and the best business class lounge in North America.

In the quarter we achieved passenger revenues of over 1.6 billion, an increase of about 1.1 billion or more than triple compared to the third quarter of 2020. Generally in line with our expectations, we operate in nearly 87% more capacity than the third quarter of 2020 and about 66% less when compared to the third quarter of 2019.

Coinciding with the easing of Canada’s travel restrictions and the reopening of the border to fully vaccinated foreign nationals. Our third quarter in fact represented a sequential growth of 178% from the previous quarter, making a meaningful point in our recovery. At the system level and exceeding our expectations, traffic measures as revenue passenger miles increased nearly 215% versus the third quarter of 2020.

As evidenced by the steep ramp up in demand this quarter, our recovery is most decisively underway. We are witnessing a strong rebound in VFR and leisure traffic remains strong, specifically within North America across the Atlantic and to Sun destination. In contrast, the recovery over the Pacific is lagging given ongoing border closures and strict restrictions still in place in many countries we fly to.

We continue to believe we can offset this with opportunities in other geographies, which I will touch on in a few minutes. Although the corporate market is slower to return than we have previously hoped, the faster than expected rebound in overall demand is driving optimistic expectations for the third quarter and 2022 as well. We continue to believe that we will see a significant rebound in business travel in 2022 led by SMEs and as Corporate Canada returns to office.

To underscore our continued network rebuild, this summer we were proud to resume service to 50 markets across Canada with August and September domestic capacity at around two-thirds of what it was in 2019. We also significantly increased our capacity to the United States including service to 34 destinations and up to 220 daily flights coinciding with the reopening of the boarder to fully vaccinated American travelers.

In August and September, we were virtually the only carriage inter present border capacity, which gave us first mover advantage as demand rebounded. Solidifying our position as the largest foreign carrier in the United States is fundamental to our commercial strategy.

The strong VFR and leisure demand observed this summer gave us confidence to announce our summer 2022 plan, with service generally to 30 transatlantic destinations, including the return to leisure focused destination with seasonal service to Barcelona, Nice and Venice and year on service to key markets, such as Amsterdam, Leon and Copenhagen.

Given its strong cultural and business ties to Canada, India remains a key market for us. So we were pleased to be able to restart operations when the Canadian government lifted the ban on passenger flights on September 27^th. We also recently increased our Toronto to Delhi service to 10 weekly flights. And last week, we began our new three weekly Montreal of the Delhi service to coincide with this year’s Diwali celebration.

This enhanced service from Eastern Canada complements our daily service from Vancouver, and our strength in India supports our strategy to capture VFR market demand. Looking at South America, as countries continue to reopen we are increasing our presence in several key markets this winter, with enhanced service following overcome from Toronto and Montreal and the resumption of our service to Santiago from Toronto.

Also we will serve Buenos Aires with one stop service from Toronto and Montreal connecting through Sao Paulo. I would like to underscore that despite it is slower than expected opening of the pacific markets are incredibly diversified International Network, along with the multicultural population of Canada gives us flexibility to deploy capacity in a variety of global markets.

While there is uncertainty of when we will return to normal capacity levels in markets, such as China and Hong Kong. You can offset the slower Asia ramp up to profitable and exciting alternatives in India, the Middle East, South America and Africa.

Turning to our Air Canada Cargo results, we achieved a record 366 million revenue for the third quarter, which represented an increase of 150 million or just over 69% compared to the same quarter in 2020 and 189 million or more than double over the same quarter of 2019.

Year-to-date, as Mike mentioned, we have now surpassed one billion in cargo revenues, for the first time in our history. Joining a small group of passenger carriers around the globe to have achieved such a milestone. Together with the leadership team, I extend my congratulations to our colleagues at our Canada cargo who continue to progress, adapt and innovate.

In addition to a record quarter, we recently broke ground on a 30,000 square foot temperature controlled facility is Toronto providing a world-class cold chain environment for pharmaceutical and perishable shipments at our largest hub. Investment in infrastructure, along with our dedicated Boeing 767 freight fleet gives us the ability to continue to rapidly expand our cargo capabilities, and capitalize on our strategically placed cargo hubs across the board.

Turning to Aeroplan, we were proud to receive the Excellence in Management award at the Golden Loyalty award recognizing the success of Aeroplan’s strategic transformation. We also achieved strong third quarter results driven by gross billings from point sold in the quarter increasing 50% year-over-year, growth in number enrolment and strong credit card engagements. In fact, average card spend and card acquisition are both higher than 2019 pre-pandemic levels.

When we relaunched the program last year, we made a commitment to earn our way into customer’s everyday lives. Starbucks and our new landmark partnership with the LCBO launching in the fourth quarter are essential to delivering on that promise, bringing in new members and deepening our relationships with existing members. Looking ahead, we will be launching our new chief gold rank card in the United States in the fourth quarter, and also expect to announce additional and expanded partnership.

So, thank you and with that I will pass it on to Amos.

Amos Kazzaz

Thank you, Lucy. Good morning, everyone. I’m delighted to be discussing these results with you. A quick general overview, EBITDA improved 487 million compared to the third quarter of 2020 with the negative EBITDA of 67 million in the third quarter of 2021 with the last two months, of the third quarter each generating positive EBITDA excluding special items.

On a GAAP basis, we recorded an operating loss of 364 million in the third quarter of 2021, compared to an operating loss of 785 million in the third quarter of 2020. Operating expenses increased 925 million or 60% from the third quarter of 2020 on a capacity increase of 87% for a total of about 2.4 billion in the third quarter of 2021.

Turning to certain major expense categories in the quarter; fuel expense increase to 297 million or 170% from the third quarter of 2020. The increase reflects a higher volume of fuel leaders consume different by increase flying year-over-year, as well as the impact of 180 million from a 39% increase in the fuel cost per liter net have a favorable foreign exchange rate variance of 31 million due to the strengthening of the Canadian dollar.

Wages, salaries and benefits increased 117 million or 25% on an FTE increase of 24% year-over-year. Regional airlines expense, excluding fuel, increased 114 million or 58%, primarily due to the higher levels of flying versus the third quarter of last year.

Depreciation and amortization expense in the third quarter was 400 million, 23 million or 5% lower from the same period last year, reflecting the accelerated retirement of certain older aircraft from our fleet, partially offset this quarter by the addition of new Airbus A320-300 and spare engines.

Aircraft maintenance expense was 153 million, up 108 million from the third quarter of 2020. The increase was mainly due to maintenance provision reductions of 72 million recorded in the third quarter of 2020. As a result of updated end of lease cost estimates. The remaining increase is mainly due to the higher volume of flying year-over-year.

As for our fleet, we exercised options for the purchase of three Boeing 787-9 aircraft, scheduled to be delivered in 2022 and 2023. As for our narrowbody fleet, we elected to proceed with the purchase of an additional two Airbus A220-300 aircraft with expected delivery in 2024.

These two are part of the 12 aircraft that we have previously determined would not be purchased. This brings our A220 firm orders to 35 with three A220 aircrafts scheduled for delivery in Q4. In October, we reached an agreement with Boeing to accelerate the delivery of four 737 MAX 8 aircraft into the fourth quarter of 2021 from 2022. The remaining nine Max 8 aircraft are now expected to be delivered by the end of the second quarter of 2022, reaching a total of 40 737 Max 8 in the narrowbody fleet.

With these two aircraft types as the cornerstone of our narrowbody fleet along with our wide bodies, we will have a very cost efficient fleet, but also one that meaningfully contributes to our Climate Action Plan ambitions. Illustrating the growing confidence we have in the recovery the planned aircraft deliveries scheduled in the fourth quarter will be purchased with available cash.

Turning to liquidity. Since the onset of the pandemic, we have taken measures required to stabilize operations and to prepare for the recovery process. Since March 2020, we have raised significant liquidity. Still, we could be certain of the length or depth of the downturn. This is why our support in April with the Government of Canada was important is made available up to four billion in standby financing through fully repayable loan facilities.

To-date we have not drawn down on any of these repayable loans in place. Nor do we intend to, except to support refunds of non-refundable tickets through a separate unsecured credit facility of up to 1.4 billion, which carries an interest rate of about 1.2%.

As of September 30^th, roughly 1.2 billion has been drawn under this facility. This refund process is nearly complete and draws under this facility may continue up until November 30^th as eligible refunds are paid.

It is still too early to discuss whether we will opt out of the government financing facilities, which we continue to view as an added layer of insurance. At the beginning of the quarter, our unrestricted liquidity amounted to close to 9.8 billion. The financing transactions completed during the third quarter alone increase our liquidity approximately 4.4 billion.

At the end of the third quarter unrestricted liquidity was 14.4 billion and consisted of about 9.5 billion in cash, cash equivalents, short and long-term investments, with about 4.9 billion available under undrawn credit facilities. Additional information about our liquidity and financing transactions can be found on our financial statements and MD&A which are posted on our website and filed on SEDAR this morning.

I’m encouraged by the improved financial results, and seeing our colleagues return is invaluable to me. Thank you for your attention, and to everyone at Air Canada, as we achieve these results together. I will now turn it back over to Mike.

Michael Rousseau

Thank you, Amos. In summary, we have finally realized in third quarter clear signs of Air Canada’s potential progress and recovery. We remain confident that these trends will continue in the direction over time will be upward, although it may be uneven.

In the meantime, we are not simply waiting for COVID to disappear. We are instead working hard to leverage our own abilities and strategic advantages to accelerate the recovery and further secure our leadership position in the competitive marketplace that as now taking shape.

Our transformed Aeroplan program stands among these strengths. The program is unmatched certainly in Canada and clearly distinguishes us from our competitors. It will be instrumental in fostering customer loyalty and also will be a significant financial contributor.

The second strength is Air Canada Cargo, which like Aeroplan is also proving itself to be an important revenue generator. Air Canada Cargo will soon take a transformational step with your arrival later this quarter of the first of a plan eight dedicated freighter aircraft.

Last few months have not only shown cargos value and diversifying our revenue, but demand for services can be expected to continue due to the increase e-commerce demand and persistent bottlenecks and other cargo modes.

Third, we have carried on with our fleet renewal for the pandemic. Our fleet is right size and ideally configured to compete in the post-pandemic market. Moreover, the removal of older aircraft and the replacement by more efficient models reduces our footprint advances our sustainability goals and helps us meet our climate plan objectives.

To this end, we continue to advance towards our targets and collaborate with others on innovative initiatives such as the leadless travel program that we recently launched with a corporate customers, with Deloitte, a significant corporate customer first onboard.

Another attribute is our new IT reservation system. Because of the pandemic, we have yet to realize the full benefits of the major multiyear investment. Now it positions us to better capture business in the resurgent travel market by giving us greater ability to serve our customers manage our inventory, and work with partner carriers. In addition, we have added many customer centric digital improvements to the overall system and we will continue to invest to improve the overall customer experience.

Finally, the award winning corporate culture we have built and cultivated over the past decade, rooted in resilience, teamwork and empathy is a key strength. It is our culture that allowed us to pivot quickly and make important decisions early in the pandemic. This positive culture combined with the appeal of Air Canada’s iconic brand, is enabling us to bounce back and reinvent ourselves to seize the many opportunities in the post-COVID marketplace. It has carried us through the pandemic and will propel us out of it.

We have worked with many partners and stakeholders to safely open up borders and travel to allow the overall community economy to recover and grow. Air Canada contributes over 2% of GDP, is responsible for a significant number of indirect jobs and connects people and businesses around the world.

We welcome the new measures announced by the Government of Canada to protect the health and safety of employees and the traveling public and are committed to implementing these new measures effectively.

Our employees have done their part, with now over 96% fully vaccinated. The employees, who are not vaccinated or do not have a medical or other permitted exemptions have been put on an unpaid leave.

We do believe, however, that with a combination of new travel policy and high vaccination rates for the general public, the pre departure PCR test is unnecessary and we will continue to advocate for elimination.

I understand and acknowledge this has been a difficult 20-months for our shareholders, and I thank them for their trust and patience. Although our share price is now significantly higher than the low over the last 20-months, we believe it has much more potential.

We have made difficult decisions to dilute our equity base in order to maintain a reasonable capital structure positioning us for future growth. We are in a recovery mode with positive indicators like bookings point to a much stronger 2022. I have full confidence that leveraging all of our competitive strengths, including our people and culture will result as well with a very strong recovery in our equity values. Thank you.

Valerie Durand

Thank you, Mike. And thank you for joining us today. In closing, we are glad to announce that our next investor day will take place on March 30^th in Toronto. We look forward to reconnecting with you in person and are excited to showcase the actions we have taken and outlining the plans and targets we will be implementing to further strengthen our Company. In the meantime, should you have any questions, we invite you to contact our Investor Relations team.

Thank you. We are now ready for questions over to you Vanili.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. [Operator Instructions] Our first question is from Chris Murray with ATB Capital Markets. Please go ahead.

Chris Murray

Thanks folks. I was just wondering if you could maybe elaborate a little bit all your commentary around booking terms and your thoughts around what we should be looking for Q4 and into Q1?

Lucie Guillemette

Hi it is Lucie. So first, with respect to advance bookings, we have seen that certainly in the last two months or so, a very solid ramp up particularly on the domestic, transatlantic and Sun markets. So in fact, in some of those areas, we are actually seeing booking levels that are equal to what we reserved in 2019.

So with respect to those geographies that bookings are coming in solid, I do have to say though, the something that is - hard because the booking a lot generally now comes in within 60-days from departure, but from what we have been observing and as we looked at the curves, we are very confident that the capacity that we have in place for Q4 for the geography that we spoke about, and also Q1 is shaping up very, very nicely.

I was just going to add that the same also holds true as we look at summer 2022. We are also very encouraged with what we are seeing in terms of how the transatlantic markets are also building.

Chris Murray

Okay, thank you. The one other question that I think in here a little bit is around fuel prices, you did mention that maybe the curves are shorter, can you talk a little bit about your ability to price fares in such a way as to reflect higher fuel prices?

Lucie Guillemette

Well, it is not necessarily easy, but listen the way that we are managing it is obviously, we are very conscious of the escalating cost of fuel. And our goal has always been to maximize revenue on board, we have levers that we can play with, we have a lot of flexibility with branded fares, we have a lot of flexibility to introduce new sources of revenues.

But at the same time, it is important for us to remain competitive, but we are more focused on our ability to optimize revenues. So, the environment is quite competitive, but at the same time, it is incumbent on us to use the levers, we have to be able to push up the yield where possible.

Chris Murray

Okay. My last question, just on the fleet, it seems like just looking at the aircraft that you are adding, there is some expectation on your part, maybe a little more optimistic view than maybe previous quarters. Can you talk a little bit about your thought process around adding additional aircraft at this point and how you think that you’d be able to use those aircraft in the network?

Amos Kazzaz

Yes. Good morning, Chris it is Amos. Yes, so you are right, you can see there are optimism a little bit as we have better line of sight on the recovery. And reviewing our fleet plan going forward, we retired a considerable number of aircraft and where we were versus 2019. That took a lot of capacity out.

And so, making those decisions now when we have much stronger liquidity when we see a path ahead enables us to take decisions on the fleet, various pieces of the fleet that either need renewal or provide the opportunity for growth as we see demand returning.

So, it is one that I can’t give you the magic plan here, Chris, but I think you will see, you have seen the by the results we have talked about today in terms of accelerating some deliveries, addition of the A220-300s, which has really proven to be an excellent aircraft for our domestic network that we have options as we look ahead to the recovery, and then we will see how, where demand lies and what opportunities make it reasonable for us to build business cases to further invest capital.

Chris Murray

Alright. That is helpful. Thanks a lot for everyone.

Operator

Thank you. Our next question is from Savi Syth with Raymond James. Please go ahead.

Savanthi Syth

Hey good morning everyone. First of all, I just kind of curious if you could provide, and I know it is not exactly high level, what you are seeing, I know you mentioned the leisure, VFR taking the lead, but I just kind of curious where kind of leisure levels are versus 2019 in the various entities and what you might be seeing from a business level as well?

Lucie Guillemette

Number one, I guess that when you prefer to do this, every project is permanent. There is no doubt that in Canada, domestic Canada has led the way in terms of corporate vision. But we are lagging behind what we are observing in the United States. And we are pretty confident that come 2022 and corporate Canada returns to their offices and business travel should return. But no doubt that for us business that drives a little bit.

On the flip side, we, from the very beginning focused on some of these leisure and VFR markets. And from the onset of this pandemic, when we entered those markets, we also focused on capturing premium leisure opportunities. So there is many segments, or many markets that we actually operate in, we continue to operate where we were able to produce some pretty good results in the premium cabin. So although it may not be corporate, there was still an avenue for us to be able to expand in those areas, which of course, we have done.

And when we will look at some of these markets, when we commented a bit earlier, and some of these leisure markets, we are actually anticipating that by the time we reach Q1 or Q2, we will actually be in 2019 levels.

Advanced bookings, particularly in the Sun region are very, very good, leisure markets are performing very, very well. And in some of the VFR markets, I will touch on India, for example. But there are quite a few like that, where we have introduced, for example, new route on Montreal, Delhi was just recently launched. And we are really confident that those markets will continue to perform very, very well for us.

Savanthi Syth

Just following up on that and I appreciate the color. From a business standpoint, are you hearing anything from your corporate clients as to when or how much they plan on traveling in 2022?

Lucie Guillemette

It is typical to, I mean we will see when the bookings start to come in and I have to say domestically, we see improvements week-over-week. But not as fast as we would like to see and we are seeing similar trends on the transporter markets, the corporate business is starting again transporter, it is just a little bit slower than we would like. On the international markets, I think it will take a little bit more time.

Savanthi Syth

Makes sense. And if I might the cargo friends, can you provide just the timing of when the A330s and the 777s go back from cargo to kind of passenger operations, and is that, is the kind of the introduction of the kind of the dedicated freighter is going to be sufficient to offset kind of the last production on that side?

Lucie Guillemette

Correct. So, as Mike indicated earlier, so the freighters will start coming in at the end of this year. And then obviously, forgot to leave the freighters will be coming into service over time. Starting in the first quarter of 2022, some of the aircrafts that are now configured to accommodate cargo will return to passenger, but at the same time, we have to keep in mind that we are launching several new international routes, which actually means that we will also have empty space for cargo. So I think overall, if you look at how the plan is going to transition, we should in very good shape.

Savanthi Syth

Great. Thank you and I appreciate the color.

Operator

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

Walter Spracklin

Yes. Thanks very much. Good morning everyone. So I would like to go back to the trends and not necessarily near-term trends, as indicated by your booking curve, but just conceptually, there is a lot of discussion about when the airline industry will be back to 2019 levels on an overall basis, let’s call it both leisure and business travel. And I guess there is a little bit of pessimism early in early days talking 2025 or later, now that is translated into some optimistic views on 2023 or earlier. My question, maybe to Mike is, is there anything that you would comment about those industry views on the return to pre-pandemic levels and in particular, would your fleet as it is ramping up now permit you to be as early as 2023, on a complete return to pre-pandemic ASM. Could you be there by 2023, if industry conditions weren’t and do you believe that 2023 is, is that even a shot here, given everything that you are seeing going forward?

Michael Rousseau

Good morning, Walter. Obviously, there is no text book on this type of recovery, or any history. There is no doubt we are very encouraged by what we see. And there is no doubt that the length of recovery has moved in from the consensus of 2025 to at least 2024 and maybe 2023. And I think that is going to be as Lucie talked about different by business versus leisure.

To answer your question, are we ready for a faster recovery? For the most part, yes. We, as Amos talk about, we were very conservative and how we managed our fleet through a pandemic, but we provided ourselves options to grow quickly.

And you have seen us step into some of those options, just in Q3. So we believe that we can get almost all the way back to 2019 capacity by 2023, with what we have today and with some of the options that we have in front of us.

Walter Spracklin

Okay that is great and can you can you update us I know, I think I touched on this last quarter, but the competitive landscape and the risk that you see, new or smaller players use the pandemic rebound as their effort to establish themselves in the Canadian domestic marketplace, in a way different than they otherwise would have had the pandemic not happened? And are you seeing any evidence from that from smaller players and is there anything that is different in terms of Western competitors response to the way they are coming back and rebuilding their operation that would give you any cause for concern?

Michael Rousseau

Yes, at a very high level, we are not surprised by anything we see in the marketplace, at this point in time. The players are very competitive, but as we talked about in our presentation, we have incredible strengths that we are going to continue to leverage to maintain our leadership position on the markets that we operate in.

And again, we have one of our key strengths is Aeroplan, it has been tailored, just not the business market, but for the leisure market, as well and with some of the key features that we have added. And so, I was spent a lot of time on Aeroplan, but it gives one of our key strengths and how we are going to compete on a go forward basis. But again, Walter we are not seeing anything in the marketplace that surprises us.

Walter Spracklin

Perfect. And just last question here and this is on one of your strengths as well as your access to a labor pool that through your agreement with jazz I think gives you a competitive advantage in a time when labor, particularly pilot shortages exist. Is that a fair, do you see that as a real competitive advantage and is that working in your favor probably not now given. But maybe even perhaps you can give a little bit of discussion. But is the pilot shortage a real thing right now. Do you have an advantage there and do you think it will limit the potential growth opportunity that your competitors might be looking for, but can’t achieve, because they don’t have access to pilots?

Michael Rousseau

Yes. So two parts to that question, one, let’s be clear, we do not see a pilot shortage. We are very comfortable with our numbers. We are very comfortable with our ability to recruit if we need extra pilots.

And second part is on the Jazz up flow agreement. It did certainly work well before the pandemic. We also haven’t dealt with it during the pandemic, and but it was and it will be as we go forward, an important tool for us to tap house move up through the system.

Walter Spracklin

Okay. That is all my questions. Thanks very much for the time.

Operator

Thank you. Our next question is from Konark Gupta with Scotiabank. Please go ahead.

Konark Gupta

Thanks operator and good morning everyone. Maybe the first question, perhaps more for Amos. Like for Q3, I was just kind of wondering, like it was a pretty remarkable achievement of exceeding your cash burn guidance by a $500 million plus. Can you help us understand how much of that kind of beat or surprise versus your own expectation actually came in from earnings versus working capital?

Amos Kazzaz

Hi good morning Konark. I would say the majority of it really came in from stronger earnings from EBITDA what we had said in terms of our couple of months there. So it beat our expectations. And then again, it sort of comes back to what Lucie had spoken about in terms of travel demand, coming in much closer to closer booking cycle in all, which we knew it had been shortening up as we have seen during the course of the pandemic, but a lot of activity in the month, within the quarter. So the majority of that increase in cash flow is from earnings and then the other part has been from bookings, from advanced ticket sales.

Konark Gupta

Thanks for that Amos. And then perhaps on Lucie, for Q4, you guys are expecting 47% decline in capacity versus 2019. That kind of suggests I think ASMs are going to be much higher in Q4 than Q3. Value and speed that capacity increase quarter-over-quarter coming from largely my guessing, right, it is going to be more like some destination and transporter or some have some leg up and domestic and prior technology.

Lucie Guillemette

Yes. So basically, yes for you know the Sun sure that not traditional going into the fourth and first quarter, but the other two thirds is where we are seeing a pretty rapid and that would be the U.S. to China border routes. So as we indicated earlier, we launched several new routes on the trans border front, and also the transatlantic. So they are really the areas where we see the biggest point in the winter.

Konark Gupta

Yes thanks Lucie. And then, with respect to the fourth quarter, I understand you guys are not providing guidance for cash flows and cash front. But if you at least help us understand you directionally. Capacity and demand seems to be going up and heading into Q4 then Q3. But on the other side of the equation, you have fuel obviously consumption will likely go up at that incremental flying, but fuel price is also going up from Q3. So there is some percentage from Q4 versus Q3 and then I don’t know if you have any comments on the subsidy benefits if you are anticipating ending there. So is there anything else that you should be thinking about when evaluating Q4 cash flow performance in Q3?

Michael Rousseau

No, not much, I think Konark, you really touched on really the highlights the puts and takes that there will be going into that into Q4. So, I think, again, you have sort of seen our conference, we have strong liquidity and so given our strong liquidity is we are focused on the recovery and rebuilding the network and going back.

Konark Gupta

Thank you. And then lastly for me, like if we go back to 2019, I think some 20% of your passenger revenue came from business scale I think. So the remainder was more like leisure and maybe some corporate travel back in the coach. Now as you pointed out Lucie like Q1, Q2 of this year, you expect leisure travel to be much closer to 2019. So what portion of the 2019 passenger revenue are we talking about here, that is going back to 2019 level and what is the remaining creases?

Lucie Guillemette

Let me see if I can maybe break it down for you here. You are right. So in years past, that was approximately the split, but now with sort of a change in the makeup of the routes, for sure, corporate will have a much smaller percentage in 2022. But what we need to consider is these opportunities that we have been able to unlock with you premium leisure, new ancillary sales, for example, opportunities for us to get more revenue into the cabins.

Those are all - the improvements that we are seeing, not only with the Aeroplan redemption demand, but also the Aeroplan redemption yields as well, which are far exceeding our expectations. The mix of revenue will change overtime, but we are assuming that by the time the corporate demand in mid 2022, comes back hopefully we will be back to a similar mix. But in the meantime, there are other opportunities for us to compensate.

Konark Gupta

That good to hear. Thank you so much. That is all for me. Thank you guys.

Operator

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

Helane Becker

Thanks very much operator. Hi, everybody on Thank you very much for the time. Just as you enter into - huge increases in premium leisure, people buying up to the premium seats. And I’m wondering, are you seeing the same thing in your markets as well, kind of taking up the seats that you would have been selling to corporates?

Lucie Guillemette

Yes, we are actually. If you look at the recovery by cabin, our premium revenues and Q1 revenues driven when you look at it from a growth year-over-year, those two gardens are recovered faster than the walk habits.

So for the reasons that you mentioned that so for example, these new premium opportunities that in the past, we would not have used or chased, but in the new kind of environment, these were new markets for us and obviously, there was potential there, so we did everything we could go and capture it.

And at the same time, our ability to put in more Aeroplan traffic and our premium traffic, we are testing all kinds of things with the Aeroplan team to see how we could continue to improve the utilization of the cabin.

So needless to say in the past, it was bit easier, because there was a corporative portion of the demand that was for corporate and we know that would return, but in the interim, not folding, those features is also very critical. And we found opportunities and new markets to be able to capture those revenues.

Helane Becker

And then I just have a question about fuel and maybe for Amos, this is for you. As you think about rising fuel costs. Do you think about it, hedging it separately or hedging in conjunction with the Canadian dollar against the U.S. dollar. Like, how should we think about fuel cost in a rising fuel environment?

Amos Kazzaz

Good Helane. It is nice to hear you again. Yes. So look, we look at the both elements, obviously, the advantages of a strong Canadian dollar, weaker Canadian dollar given fuel price and all. But what we look at, so most carefully decisions to hedge is actually what is happening then with when the premium to hedge, but then what is the curve doing? And right now, the curve is in backwardation, if you look out a year, price per barrel drops $12. So, it is hard to find yourself a position here where we are hedging makes economic sense.

As you know, we have always approached this from a conservative standpoint, just as an insurance policy to deal with the booking curve. Now with the booking curve is much shorter, much tighter and so for the opportunity there to catch a little bit of insurance there is less meaningful in the in the short-term. So I think it goes back to how Lucie talked about before on how we look at the rising fuel environment and what we do to optimize cabin revenue.

Helane Becker

Okay, that is very helpful. Alright thanks team that is all very helpful. Have a nice day.

Operator

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

Tim James

Thank you, good morning everyone. I guess my first question Lucie. Maybe you mentioned that you are saying certain markets could be back in 2019 levels in the first quarter of next year, I think that was what you mentioned and you say it is in Sun destinations, as an example. Is that when you say returning to 2019 levels that in terms of traffic or revenue or both?

Lucie Guillemette

It is actually both, but when we are looking at the advanced bookings. So that is the point that we are making regularly. When we actually look at bookings that are generated on those services for the first quarter that the amount of bookings that we are taking on a daily basis is in line with what we would have captured in 2019.

So we may not quite yet via 2019, low factor levels, but in terms of booking velocity, we are actually capturing the same amount of bookings, as we would have at that time. And I have to say on the yield front, certainly for the Sun again, we know about the fuel issue, so of course we are doing everything that we can to move the fairgrounds where possible, we are very conscious of the environment, but certainly understand that curve is shaping up pretty nicely.

Tim James

Okay, that is helpful. Thank you. I guess and particularly if you have touched on this, I know you were asked about the pilot shortage, specifically, but are there any sort of throughout the organization related to whether it is COVID or moving away from work. Are there any sort of labor availability challenges that you are facing today or you feeling good about your position and the availability of all the employees that you need as you ramp up the capacity?

Craig Landry

Good morning, Craig Landry here. Yes, certainly what we are finding is we are recalling our employees is that we get a very strong response. And we have had, as Mike has mentioned earlier, we were called over 10,000 employees back into the company since beginning of the year. We continue into the fourth quarter to bring more employees in. And we have already begun new hiring employees to come into the company as fresh new employees as well.

So what we are seeing so far is a very strong response to that, there is a lot of appetite and a lot of interest from to us want to work in Air Canada, and we have not observed any challenge that you have seen other airlines having in terms of their struggle to meet their scheduled demands. In fact, we have been able to successfully operate well in the high 90% of all of our flights as scheduled, so we are not observing the same challenges you are seeing elsewhere.

Tim James

Okay, that is helpful. Thank you, Craig. Just want to turned to an earlier comment about the movement, or the uptake of premium seating into the business cabin of leisure travelers. Do you have any historical data that provides insights into how sticky that move could be by leisure travelers into sort of a higher price point like - do you think it is likely that they will revert to sort of more traditional buying patterns, once conditions normalized, whether it is, next year 2023 or 2024 or do you think there is a tendency for people to kind of stay at a higher price point, once they have kind of tested it out?

Lucie Guillemette

To answer your question in terms of us having access to some historical data, there is no doubt that, for some markets, we do have a little bit of history in years past. And also, we are able to use the data that we asked for some margins that we operated and sort of replicating what that might look like in some other markets. So from that perspective, we get down a little bit of information to be able to use.

And the interesting thing is, as we progress through to the pandemic, we were able to come out with new products as well that customers have obviously appreciated and have shown it in kind by purchasing. So my suspicion is, some of those products will say. I think there is definitely an opportunity here for more permanent premium products for the leisure traveler. And I think, we were bullish, but at the same time, you have to sort of test some of these models to see, to your point, what sticks.

So I think, we have had a few failures. There are a few things that we tried that didn’t work so well. But at the same time, we were able to unlock some really good opportunities for to tour operator traffic and my suspicion is some of those products will continue.

We also worked quite a bit on our offerings to fee collection. And this is another good source of revenue for us, we were able to extract good dollars for seed fees in different cabins and also different data rate programs.

So we have learned a lot through this series and obviously, we are going to look to retain the products that customers have appreciated. And at the same time, there is always a desire for us to find the sweet spot in terms of willingness to pay and the way you can do that is to get some of these things as well. But I think overall, we are pretty confident that some of these products will stay.

Tim James

Yes we think there would be certain interesting marketing opportunity almost for you to have some of those passengers sort of try something at a higher price point. I know, it was the biggest mistake I ever made paying up for my kids to fly in a premium seat, because they did not respond well, when I put them at the back of the bus again. They are not terribly rational. So they probably are like many of your passengers.

If I could just squeeze in one last quick comment, a quick question. I know it is early, but any thoughts to sort of what needs to occur in the market to resume guidance on a more normalized basis and again, I’m anticipating or expecting at anytime soon, but I’m just worrying about your thought process there?

Amos Kazzaz

Tim it is Amos good morning. I think actually, what Valerie mentioned at the end is look forward to our March 30^th, Investor Day. And I think that is where you will see a speck on sort of our metrics, as we had done before, and finding out what our aspirations and targets are and provide some more insight. We need a little bit more time because we are seeing how the recovery is unfolding and putting all that together, so stay tuned for March 30^th.

Tim James

Okay. That is great. Thanks very much Amos. Thank you everyone.

Operator

Thank you. Our next question is from Cameron Doerksen with National Bank Financial. Please go ahead.

Cameron Doerksen

Thanks, good morning. Maybe just a couple of balance sheet questions for Amos. I mean, you have sort of indicated that the government credit facilities, you see it as insurance not looking to opt out of it yet. Is there a cost to you for keeping those facilities in place?

Amos Kazzaz

Good morning Cameron. No, there is no cost to keeping those facilities in place. Talking about the $4 billion in terms of standby credit, if you will facilities various tranches there. So no, there is no cost event. The only cost in terms of programs is what we have drawn down on the refund facility which is as a seven year money at 1.2%. So, very low cost, financing there to essentially pay the non-refundable tickets issued.

Cameron Doerksen

Right. And just other balance sheet question. I mean, what is your ability to kind of accelerate the debt repayment here? I mean, obviously, if things do recover, as expected, here, you are visiting with quite a bit of cash on balance sheet, presumably free cash flow is going to reflect even more positively. So just talk about your ability to kind of accelerate some of the debt repayments?

Amos Kazzaz

There is right now sort of limited opportunity to accelerate some, but there are other, there is some amount that could be accelerated, but it is more specifically around how we sort of go forward in terms of financing.

And looking at aircraft purchases and looking sort of deleveraging, as you have seen here, as I mentioned, we are purchasing the aircraft with cash coming up, so using cash there to fund CapEx investments. So that is sort of a general flavor right now, Cameron.

Michael Rousseau

Just to add to that Cameron, it is Mike. My aim is the team, collective team have done a great job. Putting together that structure of the company and the weighted average interest rate for the, our total debt is sub 4%.

And so there are, we have gotten rid of the high cost debt and so now we are very, very comfortable with a sub 4% weighted average. So there are some floating debt, we could pay back, but again, we have locked in with rising interest rates, we have locked in a fair amount of other debt right now.

Cameron Doerksen

Okay, that makes sense. And just a second question for me. Just on the testing requirements, Mike, you mentioned that your view is at the PCR pre-departure test, unnecessary. I think that is a view shared by a lot of people. But how much of an impediment do you think that is for travel? I’m just thinking about Sun destinations, if you have got a family of four, and you have to get a PCR test at either end of the trip. I mean, there might be some sticker shock there for some people. So I’m just wondering if that were to go away do you think that you another sort of step change in potential demand recovery?

Michael Rousseau

There is no doubt Cameron, it would help. We don’t have numbers as to what the incremental demand would be. Without that test, but obviously, it is - one we don’t believe is required from a safety perspective essence. That is the key supermarket structure, but we certainly would help demand it. We just don’t know what that number is.

Cameron Doerksen

Okay, fair enough. That was it for me. Thanks very much.

Operator

Thank you. That is all the time we have for questions. I will now turn the meeting over to Ms. Durand.

Valerie Durand

Thank you very much Vanili and thank you for joining us today. Again, we remain available. Should you have any additional questions through our investors relations team. Thank you. And have a nice day.

Operator

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