Air Canada (OTCQX:ACDVF) Q3 2022 Earnings Conference Call October 27, 2022 9:00 AM ET
Valerie Durand - Head of IR and Corporate Sustainability
Michael Rousseau - President and CEO
Lucie Guillemette - EVP and CCO
Amos Kazzaz - EVP and CFO
Conference Call Participants
Cameron Dirksen - National Bank Financial
Kevin Chang - CIBC
Savanthi Syth - Raymond James
Chris Murray - ATB Capital Markets
Stephen Trent - Citi
Andrew Didora - Bank of America Merrill Lynch
Walter Spracklin - RBC Capital Markets
Good morning, ladies and gentlemen. Welcome to the Air Canada Third Quarter 2022 Earnings Conference Call. I would now like to turn the meeting over to Valerie Durand. Please go ahead, Ms. Durand.
Thank you, Mo. Welcome and thank you for joining us on our third quarter call of 2022. Joining us for this call are Michael Rousseau, our President and Chief Executive Officer; Amos Kazzaz, our Executive Vice President and Chief Financial Officer; and Lucie Guillemette, our Executive Vice President and Chief Commercial Officer. Also with us this morning are Craig Landry, Executive Vice President and Chief Operations Officer, and Marc Barbeau, Executive Vice President and Chief Legal Officer.
After management's overview, we will be available until 10:00 AM Pacific time -- Eastern Time for questions from equity analysts. After the question-and-answer session, Mr. Kazzaz and Pierre Houle, Vice President and Treasurer will be available to answer questions from Terminal B lenders and holders of Air Canada bonds.
Before we begin, please note that our comments and discussions on today's call may contain forward-looking information about Air Canada's business, objectives and strategies, which are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. Please refer to our third quarter public disclosure for cautionary statements regarding forward-looking information.
I will now turn it over to Mike.
Messy, Valerie and good morning everyone. Thank you for joining us on the call today. We are very pleased with our third quarter financial results. They mark an important step in our recovery as we reported quarterly operating income of $644 million, with a strong operating margin of 12.1%.
This is our first positive quarterly operating income since the pandemic began in early 2020. EBITDA increased by more than $1.1 billion. And we saw very significant revenue growth with quarterly revenue of $5.3 billion about 2.5 times from the $2.1 billion a year ago, on a capacity growth of 130%.
In fact, that's around 96% of our Q3 2019 revenue levels, even with some restrictions still present, notably in Asia. Meanwhile, we held the firm line and costs and managed through a challenging fuel environment.
With the growth in operating capacity, resulting in better aircraft utilization, adjusted CASM improved by 38%, when compared to the third quarter of last year. We reported positive net cash flow from operations for the fifth quarter in a row. And we ended the quarter with just over $10.2 billion in total liquidity.
Of course, these results are linked to the return of travel, which remains on a progressive recovery as we predicted it would be. This quarter we safely transported 11.5 million customers.
Geographic perspective that is more than double the same quarter of last year and close to 90% of all customers carried in 2021. Over the quarter, we continue to restore our extensive network, improve operational performance progressively, deploy are modern and efficient fleet and enhanced our products and services.
This propelled by the incredible teamwork of our employees is what is behind these financial results. COVID has been one of the industry's greatest challenges in both severity and duration. Yes, throughout the pandemic and now still and despite the personal challenges that may have had to face. Our employees have stayed focused on our customers and on positioning our company for recovery.
I am incredibly proud of them. And on behalf of the entire leadership team, thank everyone for their hard work. Now we are well into our winter operation preparations. The customers booking holiday and winter getaway travel, they can have full confidence in our ability to carry them safely and conveniently.
We continue to step up, train, and are applying lessons learned during the summer to elevate our customer service. This includes working with our third-party service providers upon whom we rely. As well many technology initiatives we implemented over the last two years will remain in place because they improve the customer experience.
Our recent online customer self-booking tool is one good example. Our key operational metrics, including flight completion and baggage handling, are now back to pre-pandemic levels.
Air Canada is emerging from the pandemic stronger, more resilient, and more adaptable. We are certainly well positioned to capitalize on the ongoing recovery.
And with that, I'll turn the call over to Lucy.
Thank you, Mike. Good morning, everyone.
Mike spoke to our very encouraging return to operating profit, I'll expand on that topic by first discussing our passenger revenues, surpassing $4.8 billion, a nearly three-fold increase from the third quarter of 2021.
After some of the most trying times in aviation history, we now see that travel is back with a strong momentum. In the third quarter of 2022, traffic and total operating capacity more than doubled year-over-year. This results in a 15%-point increase in passenger load factor.
I'd like to emphasize that while we operated 79% of 2019s third quarter capacity, we recovered to 94% of the passenger revenues compared to the same period. This revenue performance resulted from a healthy yield environment from a better fair mix in all cabins and solid premium cabin performance.
The diversification of our network also contributed to this, as it enabled us to offset some of the remaining post pandemic challenges, such as ongoing travel restrictions in Asia, and oversight limitations impacting our India operations.
Our network diversification not only makes us less dependent on any one geography sector to drive overall revenue performance, it also gives us options to better balance our seasonality.
With further easing of travel restrictions and recovery well on its way, our transatlantic markets performed exceptionally well. Atlantic passenger revenues were just shy of $1.8 billion, an increase of nearly $1.4 billion or about 4.6 times the third quarter of 2021.
I'm extremely pleased to highlight that third quarter 2022 Atlantic passenger revenues surpassed those of the third quarter of 2019 by 10%, even though we operated 91% of 2019 Q3 capacity.
All of our revenues met or exceeded our expectations, which gives us a lot of confidence hence our decision to expand our summer 2023 offering with the addition of new European services to Brussels from Toronto, as well as Copenhagen in Toulouse from Montreal,
The line is prized not only for leisure, but also by corporate customers, as it is strategically linked two global aerospace centers.
We also competed well at home. Despite a very aggressive domestic candidate landscape, domestic passenger revenues performed above expectations, and amounted to about $1.5 billion, a 90% increase from the third quarter of 2021.
By comparison, these revenues represent 95% of those in the same period in 2019, on 85% of the operating capacity. PRASM and yield each increased 12% when compared to the same quarter in 2019. With the increasing demand and more routes and frequencies available, U.S. transporter passenger revenues of $915 million increased $624 million, or 215% from the third quarter of 2021.
When compared to 2019 US Transporter passenger revenues were 92% of those in the same period in 2019 on 89% of the 2019 operated capacity. A 6th freedom demands throughout the quarter remained robust. Over the last two quarters, we've seen solid improvements compared to our internal targets, as well as meaningful improvements versus 2019. In fact, we've hit a record in this traffic via our hubs over the quarter. As we look ahead, we're observing steady growth for US originating traffic to the Atlantic and the Pacific.
With US traffic continuing to trend upward, and given the strength of the US currency, we expect our transporter network to continue performing well, generating strong revenues from points of sale of the USA. Our recently expanded joint venture with our longtime partner United Airlines will also enable us both to expand our network reach and better serve our customers. We are very pleased with this partnership.
Turning to the Pacific, revenues increased to $382 million from $112 million in the same quarter a year ago, reflecting a better operating environment after the easing some restrictions, albeit that was limited to certain countries. Looking forward, we expect an improvement in this market as restrictions ease, like those recently announced for Japan and Hong Kong.
Our passenger revenues also produced better results of $285 million. That is an increase of about 3.6 times from the same period in 2021. This reflects the increased demand in all cabins and greater availability of routes and frequencies across our Caribbean, Central and South American networks.
Finally, other revenues of $223 million in the third quarter of 2022 are more than doubled in the third quarter of 2021, due to the higher volume of revenues at Air Canada vacations.
You know we have invested over the years in a suite of tools that allows us to better predict demand and optimize our revenue potential. Despite the devastating past two years, we have continued to forge ahead with our revenue acceleration roadmap, and these tools allow us to quickly react and face the changing demand and booking profiles of the new normal with confidence.
As we head two prime Sun flying, looking to Q4 and even Q1 2023, we continue to see very strong leisure and Sun demand exceeding 2019 levels. You'll recall that in the first six months of 2021 flights to Mexico and the Caribbean, were suspended and travel restrictions were still ever present the following winter, so many customers are eager to return to travel.
It's our last review with you we've observed changes in booking behavior for both leisure and corporate travel. Booking curve is becoming a bit longer than post pandemic. Trips are lengthening. And we can see travel patterns changing to accommodate a combination of business and leisure travel.
In terms of corporate demand, this will return to the office was ones fought to keep people from traveling. We now see that even the hybrid worker is returning to travel to reengage in person with colleagues, customers and suppliers. You will recall that we saw an important return of this type of travel in June.
Post Labor Day we've also seen positive improvements from those two levels. And we expect Premium Economy, business class revenues and trips for business to continue to grow. In fact, the revenue recovery of premium cabins has outpaced economy cabins, which speaks to our ability to successfully develop new market segments.
Advanced ticket sales were also strong in the third quarter, reaching 95% of 2019 levels for the same period. For the fourth quarter of 2022, we plan to increase our capacity to approximately 85% of the same quarter in 2019.
In addition to our new strategic routes to Europe and the US, the recently announced resumption of services to Japan and increased frequencies to key international destinations for summer ‘23 will also stimulate additional future bookings.
Another change we've taken notice is the rise of premium leisure travel. In the third quarter of 2022 passenger revenues for Premium Economy cabin increased four times. Is this an economy cabins revenues increased three times each when compared to the third quarter of 2021.
Passenger revenues for premium cabins combined increased about 11% versus the third quarter of 2019. We're pleased with the performance of our premium cabins and we are diligently working to restore our offering with new adapted offerings to our new reality.
Aeroplan is also performing extremely well. It remains a key component of our customer acquisition, retention and marketing strategies.
Several Aeroplan KPI set records in the quarter, we enrolled over 950,000 new members this quarter, and members continue to engage with our retail partners at levels beyond initial expectations. Those feelings from point sold to third parties also came in at an all-time high, up nearly 30% over 2019 reflecting success with new current acquisition and spending levels on the existing base.
Air Canada cargo continues to play an important role. You will see that revenues declined by 23% from the third quarter of 2021. Yet this remains above 59% above 2019 level. This reduction was anticipated as it was mainly due to lower traffic in the Pacific market and reduced cargo activities as we have returned all the temporary converted aircraft to passenger service.
In addition, you'll recall that cargo yields were extraordinarily high at the beginning of the pandemic. With the rapid the rapid surge in demand for air cargo paired with the reduced capacity resulting from the grounding of wide body aircraft worldwide.
Our Boeing767 freighters and investment in long range 777 wide body freighters, combined with the belly space from our robust passenger network will allow us to continue to offer one of the most flexible and optimal cargo operations in the Americas.
We also continue to actively explore future opportunities as we see the possibilities to capture more market share. In addition to the freighters we continue to fund our cargo future by investing in new technologies and solutions. Air Canada cargo has also become the first North American carrier to join the cargo wise platform, allowing customers to have real time access to schedule pricing and bookings.
So with that, I’ll now pass on to Amos, for his updates.
Good morning, everyone. First, I'll provide a quick overview of certain financial elements we're calling out for this quarter. In the third quarter, we had operating expenses of $4.7 billion, an increase of $2.2 billion from the third quarter of 2021. It goes without saying that return of travel increased our year over year flying and consequently impacted all line items.
Aircraft fuel expense was $1.6 billion in the third quarter, an increase of $1.1 billion that is nearly 3.5 times higher than third quarter of 2021. In fact, the cost of fuel per liter has increased by over 80% from the third quarter of ‘21.
Another element we must consider to a lesser extent is an unfavorable foreign exchange variance, which also contributed to the fuel expense increase, we continue to monitor fuel price volatility, we have been primarily addressing the fuel price increase through pricing actions and through our revenue management levers.
Overall, our adjusted CASM of $11.6 improved by 38% in the third quarter, compared to the same period in 2021, is also sequential decrease from the $13.1 in the second quarter of 2022. When compared to the third quarter of 2019, adjusted CASM increased 14.8%.
Looking at non-operating expenses, the weakening of the Canadian dollar also impacted long term debt and lease obligations. This is the primary reason behind the loss on foreign exchange of $951 million in the third quarter versus losses of $136 million in the third quarter of 2021.
It is important to note however, that the bulk of this recorded foreign exchange loss $862 million to be precise is the result of non-cash remeasurement of long-term debt and lease obligations. Therefore, any foreign exchange impact will only be realized when we actually pay such debt obligations.
We do have a foreign exchange hedging structures in place and the commercial focus areas like increasing 6th freedom traffic and Aeroplans continued international growth also provide a growing natural currency hedge.
As for liquidity, at the end of the third quarter, total liquidity was $10.2 billion, comprised of cash, cash equivalents, short and long term investments. It also included the amounts available under undrawn credit facilities, as well as funds held in trust by Air Canada vacations.
This considers the capital expenditures over the quarter as well as the repurchase of U.S. $207 million aggregate principle of our outstanding 4% convertible senior notes due in 2025. That repurchase was done for an aggregate cash price of approximately US $249 million including accrued interest. Following this repurchase US $540 million aggregate principal amount of notes remain outstanding.
We are well above our targeted minimum total liquidity balance of $5 billion. Our main priorities for the use of cash remain funding our growth and deleveraging.
Now for some updates on our fleet, all 40 Boeing Max aircraft on firm order have been delivered. We now have 31 A220s in the fleet and expect to be a 32 -- 33 by December 31.
As you know, we have firm orders for 45 A220s. The deliveries of 12 aircraft are expected to occur in 2024 through 2025. And this week, we announced the conversion of the options for firm orders for an additional 15 A220s. These are expected to be delivered in 2026 and bring the total A220 fleet to 60 aircraft.
Our A220 and Max deliveries, complemented with our recently announced 38 A321 XLR aircraft will complete the renewal of our narrow body fleet.
And in September, we are excited to announce our agreement for the purchase of 30 ES-30 electric-hybrid aircraft, in addition to an equity investment of US $5 million in Heart Aerospace. The first of such aircraft is expected to enter service in 2028.
I will now pass it back over to Mike
Thank you, Amos. With a number of very important strategic initiatives in place, we are taking action to seize the opportunities we see before us.
Most evident of these is the ongoing rebuilding of our network, including for both passenger travel and cargo. Lucie spoke of the announcement of our expanded summer schedule and the restoration of several previously suspended routes. We have been adding capacity carefully. For the full year 2022 we expect our capacity to be about 73% of our 2019 pre-pandemic schedule.
Support of our expansion we are deepening existing relationships with key partners, such as through our transporter agreement with United Airlines. We also found a new partner to extend our reach even further by negotiating a co-chair arrangement with Emirates announced in July.
This is a significant partnership that will offer our customers access to even more destinations in Canada and the Americas. It also opens up many new route combinations for travelers across Emirates and air Canada's extensive networks in the Americas, the Middle East Africa in Asia.
Another central aspect of our strategic plan is our fleet renewal program, which Amos provided an update on, our new aircraft are more cost effective than those that they replace, increase our capabilities and strengthen our competitiveness. They also contribute to our greenhouse gas emission reduction targets that are part of our climate action plan.
Our decision to acquire 30 ES-300 hybrid aircraft from Heart Aerospace underscores our commitment to invest in new green technologies. This is also why we committed with Airbus in July to work alongside other carriers on carbon capture technology. And more recently we secured choose as a new partner for our customer offset program.
In addition, we are continuously examining all elements of the customer journey to enhance the travel experience. Yesterday we announced a suite of new product improvements from lounges to onboard dining to make travel more enjoyable for the Air Canada customers.
Aeroplan is also a key area of focus. The program is outperforming our internal targets with their return of travel is winning awards, including for the best redemption ability as a top trending program at their Freddie awards, and more recently, the best earning and redemption ability at the frequent traveler people's awards.
Aeroplan continues to strengthen this value proposition. One example being with this recent hotel Sabres program that significantly broadens the program's ground offering.
The quarter also saw other advances related to ESG. Our commitment to safety first always has as well as our use of technology to promote workplace safety. We’re recognized by the Occupational Health and Safety honors, where we won in the OHS culture and best use of safety technology categories.
The area of employee engagement there Canada was named one of Canada's best employers for diversity by Forbes. We are also recognized at the annual Canadian HR awards for having the best Corporate Social Responsibility strategy and just announced the expansion of our scholarships for Women in Aviation by joining forces with our partners CAE.
This is of great importance to our company as it is for our many stakeholders. I'm very proud that we maintain our ESG initiatives despite the pressures of a global pandemic. That on account of ESGs increasing relevance to the investment community, we also published our first TCFD report, for climate related disclosures in August.
In our annual Citizens World report was also released days later. It outlines our overall ESG achievements for 2021 and our ongoing commitments. Again, both reports are available on our website.
And finally, this quarter, we mark the 85th anniversary of Air Canada's first commercial flight from Vancouver to Seattle. Just at time, generations of employees through hard work together built a global brand around safety, innovation, and customer service excellence.
We are looking forward to the next chapter, and are committed to continue earning our customer’s loyalty by providing safe, dependable and consistently better service. We stand on a very robust foundation. And with the financial results announced today our investments and strategic plan, we know we have a bright future in connecting Canada and the world. Back to you, Valerie.
Thank you, Mike. And thank you all for joining us this morning. We are now ready for questions. In the interest of time, we kindly ask that you each limit yourself to two questions, or one question and one follow up. Should you have any additional questions we invite you to contact us at Investor Relations. Over to you, Mo.
[Operator Instructions] Our first question is from Cameron Dirksen from National Bank Financial. Please go ahead.
Thanks very much. Good morning. You talked a bit about I guess the outlook, especially for demand and Sun destinations. Can you talk about what maybe what you're seeing on the yield front in Q4, especially as we move into, I guess, the peak sort of Christmas season? Are you seeing any kind of change positive or negative on yields in Q4?
Yes, it's Lucie. Certainly as we look forward, we're not observing any softening on the yield side. In fact, based on the booking cruise, the yields are holding the average fares are holding. And as, you know, we continue with the recovery here. There's also other opportunities for us to push up yield a little bit, we have different distilleries that are going back into the market, the corporate travel profiles are changing a little bit. So to answer your question, I would say, No, there is no softening on the yield side as we look forward.
Okay, that's good to hear. And my second question is, I guess, sort of related to Aeroplan, obviously, this has been huge success. You mentioned 950,000 members added in Q3. I guess my question is, I just wonder how you sort of balance, the growth of the program, the growth of the membership, and some of the benefits that frequent fliers of Air Canada have, kind of like us learn to expect? And I guess I asked the question is because your membership growth, I assume, is putting some limits on your build, the lounges, getting busy things like that. And I just noticed last night, there's an announcement about, I guess, reducing the mountain membership, lounge access for certain tiers of frequent flyers.
So I'm just wondering how you sort of balance the growth in the program and I guess the benefits that come from it?
That's a very good question. And I think we have to look at it. There's more longer term benefits or program changes that we've done. And this follow the focus groups et cetera listening to our customers, and we adapted the program to meet customer’s needs. Now in the short term post recovery, and you highlight a phenomenon that we are observing, which is the lounge capacity, and it's something that a lot of airlines are experiencing as well, this is a short term issue.
And we have made changes to the benefits with respect to access to the lounge for some of our members, and we will continue to do those kinds of things. But I think the fact that the program is growing, and that we are increasing membership, obviously is a very positive -- a very positive for Canada. I mean, it's positive from a redemption point of view. As you know, with the Aeroplan program, now customers have access to 100% of the seats.
So, as you say, it's something that we do need to balance. But I think we're in a pretty good position as we continue our recovery here.
Okay, that's very helpful. Thanks very much.
Thank you. The following question is from Kevin Chang, from CIBC. Please go ahead.
Thanks for taking my question. Maybe if I just look at the domestic performance, if I look at the yields in Q3, outside of some anomalies during the pandemic, this looks to be the highest, we've seen it and you mentioned the strength affairs, and it's sticking, but I'm wondering, are you seeing any demand destruction, at least with the more price sensitive customers or is that creating an opening for new competition, obviously, a number of ULCC's are looking to start up here and candidates, just wondering what you're seeing across the booking curve, just given the overall domestic performance looks to be very strong?
There's a couple of things certainly for domestic, when you look at the yield, one thing that's quite important for us is certainly its domestic, some of the yield change versus 2019, is also impacted by stage length. So if you look at, the network that we're flying domestically, we have a lot of long haul flying a lot of transcon flying, which is very good. It's coming in. It's very, very solid average fares.
But overall, when you look at the domestic yield, it does push the yield downs a little bit. But when you look at the makeup of the traffic within the domestic network, so first, there, you're right, we do have a leisure component. And from what we're observing the leisure yields, even for travel within domestic or holding,
We have also, as you know, a fair amount of corporate traffic that flies across our domestic network, very encouraging signs, particularly on the corporate side for long haul traffic, that has returned very nicely. And yields are, are solid there as well. One area that we think will come back, it may take a little bit longer. It's the short haul corporate business, which, of course, is high yielding for us as well, that's been a little bit slower.
And also, we have to keep in mind that our domestic network also connects a lot of our network, which in other geographies where yields are also quite healthy, and the market is absorbing the increases is having a positive impact on our domestic service as well.
Okay, that's helpful. And then maybe, maybe just with all the currency moves, the strengthening US dollar, weakening Euro, are you seeing that impact travel patterns? Are you seeing that as a tailwind for 6th freedom? Are you seeing increasing demand from point of sale Canada to the US into Europe, just to reflect reflects some of these significant currency moves we've seen the past few months here?
Kevin, we are certainly observing very good recovery point of sales, US and as I noted in my remarks, even for 6th freedom traffic originating in the US, destined to international destinations. I mean, it was a record for us. So certainly, point of sale, with the US is certainly very positive.
Okay, I'll leave it there. Thank you very much. Congrats on a good Q3.
Thank you. Following question is from Savanthi Syth from Raymond James, please go ahead.
Hey, good morning. I was kind of curious if you can give some kind of early indications on how you're thinking about 2023. Just kind of given the transport a JV, it looks like you're planning on some kind of good growth across there. And are you still thinking about kind of getting back to, like, 90% 95% capacity by the summer or has that view kind of moved up, given how strong things are looking these days?
Good morning, Savy, it's Mike. So we’ll provide first of all, first guidance like we have in the past. When we release our year end results, we're still tweaking the schedule with the schedule in place right now. It does show growth and you see in each quarter in 2022 sequentially increase from 73% 79% 85% in Q4.
But again, we'll provide more color and clarity in February, when we speak to the marketplace. Again, we're still tweaking a couple of things right now.
And maybe just on that end, for my second question, just, you know, what's the capability of the top end of given the assets and the people that you have? And I'm curious, I think I saw that there was an offer made to pilots recently that got voted down. And I think it had some kind of maybe pay improvements, but in return for some training flexibility. I was just kind of curious, where you are in terms of the ability to flex up and also, maybe what you were trying to achieve with that offer?
It’s a good question, we certainly have the ability to flex up. Our negotiations with pilots would have given us a little more flexibility at the end of the day. But still, even with what we currently have in front of us both from aircraft and people, we can certainly flex up next year.
Could you kind of -- is there a kind of have you is that flex up to back to 2019 levels above 2019 levels…
We never expect to get to 2019 levels in 2023 and serve our long range plan that was more of a ’24 objectives. But certainly like, like I said, we're still looking at opportunities where we can flex up. Just we put out a very aggressive summer schedule with new locations and resumption of services that we had suspended. So we like where we are right now. As we look into early next year, from a demand perspective, from a yield perspective, and from a capacity perspective, again, we'll provide more color in February when we speak to the market.
Appreciate the color. Thank you.
Thank you. Our following question is from Chris Murray from ATB Capital Markets, please go ahead.
Yes, thanks, folks. Maybe just falling on that question from Savy a little bit. Thinking about fleet. And I'm thinking about a couple of things with the Pacific market, one of the arguments for having with 777 was to handle some of those higher capacity markets. And I'm also thinking about A220 little bit.
So a couple questions here. If the Pacific market is start shifting a little bit, is there an opportunity or thought around redeploying the 777s into different markets or in different ways? And then thinking about the A220s, just to start, a couple of the other operators have talked about Airbus building a larger variant of that, is that something you might be interested in? And if so, could you convert some of these options that are in the out years maybe to a larger, larger gauge?
Hi, it's Lucie. On your question regarding 777. In fact, we are doing that. So we have, as a result of some of the issues with China, some of the issues with the overflights, impacting our India we have -- we aligned the network and made some move with the 777. And we're also always looking for opportunities as well, to be able to better balance and remove some seasonality, where we have the opportunity to look for new markets, during winter operations, Bangkok, for example, is a perfect example of that, that will be starting in December.
So, as we look to -- as we navigate our way through the recovery, and we see opportunities for us to rebalance that and look to redeploy some of the 777s, it is something that we, that we actively do.
Hey good morning, this is Amos. On your question on the larger variant, potentially of A series, the A220, we have the 100-300 and rumors of dash 500. It really doesn't sort of fit within our fleet makeup as it is, if you recall, if you look now look at our fleet, we've got the 220s then sort of next size up is the Maxs, and then beyond that as the XLRs. So really fairly much cover what we need from a narrow body perspective, as I spoke about in my remarks there from fleet replacement and renewal perspective.
Okay, that's helpful. And then just moving on maybe talking a little bit about we touched a little bit on labor, but I guess next year, it might be a bit of a topic, you'd have some, I guess, some contracts in ‘24. As you're thinking about a lot of these different moving parts as you get restarted, and maybe think about the next phase of growth, how do you think the negotiations and the labor front?
Your position, in next year, I mean, these are these over the last few years have been there's been different variations on the theme, but just how should we be thinking about the process as we go into next year?
Chris, this is Mike. I mean it’s difficult for us to speculate on something that it's going to happen in our first contract with the pilots ends in September 2024. And so it's difficult for us to speculate here, how those conversations are going to go we enjoy a strong relationship. We're recovering very quickly.
And we'll engage in discussions with them at the appropriate time. And see where it goes. I mean, obviously, a lot of US airlines are currently negotiating with labor groups. And we're not going be any different. We're coming off our tenure agreements, which have been very successful for the company and all the employees of the company.
We will engage at the proper time with other unions as their contracts come up.
Okay, I’ll leave it there. Thanks, folks.
Thank you. Following question is from Stephen Trent, from Citi. Please go ahead.
Thank you, everybody, and appreciate you taking my question. Just two quick ones. Maybe MS -- maybe the first one for you, you mentioned, FX hedging. And I was wondering if you could maybe give a little more color on whether that's kind of primarily focused on the leases and debt, or how you thinking about the program operationally? Thank you.
Yes. Good morning, Stephen. So on the honorifics, we have an 18-month hedge book, if you will, on currency, which basically covers about 60% of our needs. We don't really hedge on the on our debt side, because again, that's sort of draconian, it's driven by maturity dates, and so forth, which are out longer, out to 2025 ’26, ‘27. So our program is really focused on 18 months, and that really covers fairly much all of our operating expenses of US dollar denominated operating expenses.
It certainly doesn't quite cover fuel. But from a fuel perspective, we're managing that through essentially, fare increases. So you know, our book is that's how our approach is to foreign exchange hedging. And then of course, the natural hedges we get from US point of sale revenues, Aeroplan as well, and other currencies, which are then also converted into US dollars.
Okay, super, really appreciate that MS. And just really quickly, broadly speaking, when we think about your alliances, any sort of high level view and how you might quantify, how much revenue growth you might expect from the United Airlines partnership in terms of maybe incremental top line growth? Thank you.
It's a little bit difficult to assess that way. Let me tell you, particularly with respect to the agreement with United, we've had a very solid relationship with the United for a long time. This next phase though, with the transporter venture will certainly help us from point of sale US corporate demand, those -- that type of travel. But this will also be very, very beneficial for our customers, that this advancement in the JV, there are a lot of benefits, where we look to offer reciprocal benefits on each other.
So, it's a little bit difficult to comment on exactly what the revenue growth would be as a result of the joint venture, but certainly this takes us up an extra notch here, certainly the best joint venture transporter by far.
Okay, I really appreciate that and many thanks for the time today.
Thank you. Our following question is Konark Gupta from Scotiabank. Please go ahead.
Hello, this is Amina. I'm calling -- I'm his associate. My question is how do you plan to approach capital allocations besides purchasing aircraft? And do you have any flexibility to retire some debt?
Yes, good morning, it's Amos. So on our approach to capital allocation, it's really, as you said, CapEx funding our growth. And our second priority is on deleveraging. And so you saw some activity this quarter here. This last quarter, I should say, where we pay down -- we bought back for $250 million roughly, of the US dollar denominated converts. And so are there other opportunities, it's something that we continue to look at, there are a number of items that we're exploring. But again, our focus would be to deleverage, as we've outlined before, we do carry a bit of excess cash, as you've seen from our numbers.
But, we'll continue to explore it, where there's an opportunity, we'll step into it and delever.
Thank you. No further questions.
Thank you. The following question is from Andrew Didora from Bank of America. Please go ahead.
Good morning, everyone. First question for Amos. Just the 133 per liter fuel guide for the full year. Seems it seems a little bit high. I know FX influences that number. I guess it implies a 4Q kind of per liter metric that's kind of the high -- one of the highest on the year for the quarter. Just curious, can you kind of walk us through how you built up to that number?
Yes, good morning, Andrew. So fuel prices, not my favorite area. And certainly, as has been challenging. We continue to see a lot of volatility, essentially, in New York Harbor pricing. And you're seeing, we saw the spikes earlier back in April and May, then again, in a couple of weeks ago, it spiked again, and continue to spike given essentially, availability, pipeline, tankers, all sorts of East Coast refining capability.
So, that dislocation continues to be extremely volatile, and then the crack spreads are really have not returned anywhere near to their historic levels, and continue to remain at really stubbornly high prices $50 to $60, on crack spreads. So, when we looked at it at the time, we were putting our forecast together, thought volatility, we built it up based on what we were seeing at that point, with New York Harbor pricing, our exposure to that, given our East Coast purchasing, based off of New York Harbor pricing.
So that's really was is what's driving that and what's driving the price of fuel per liter up, the whole volatility in New York and New York Harbor.
Got it. What percentage of your fuel do you get from that benchmarked off of New York Harbor?
So roughly about 45% of our fuel is exposed to New York Harbor pricing fairly much everything from Toronto, all the way out east. Now, what we do to manage and mitigate that, we take a couple of that a number of actions, one from a tanker and capability on flights with fuel through dispatch. And the secondary is we continue to actually rail fuel from the west, from the prairies over to East Coast and to our storage facilities there to help mitigate the impact of pricing and continue to soar, explore other options of bringing in barges are fueled up from the Gulf Coast up north here, so lots of actions there to try and mitigate this. But right now this is that's the exposure that we have Andrew.
Got it. Okay, that was a little bit higher than I would have thought. Thank you for that. Second question is for Mike. I know you reiterated your full year EBITDA outlook. That seems like a pretty wide set of outcomes in 4Q, that it just that feels volatile. But is there a bias that you have to the high or low end of the portfolio margin outlook? Thanks,
Hi, Andrew, good morning. I always have a bias to the high end. But again, we kept the range in place for the reasons we spoke about and everything and we like where we are. And, we've delivered really solid Q3 results and those trends are moving into Q4 and into next year. And so again, we'd like where we are and hopefully, our results for 2022 come to the high end, but we'll be able to tell you that in a couple of months.
Okay, I tried. Thank you.
Thank you. Our following Walter Spracklin from RBC Capital Markets, please go ahead.
Yes. Thanks very much. Good morning, everyone. I wanted to come back to A220. Obviously, having covered Bombardier for some time, we got intimately close to that aircraft. And I do like it very much as a passenger, I think it's ideally suited for your network. I mean, correct me if we're on these long, thin routes, especially in a kind of rebounding environment, this kind of hybrid regional/narrow body with some nice wide body, complements to it in over bin, and so forth. Just makes it to me a really good aircraft for your network.
And I'm curious as to whether you view it as a strategic advantage in Canada, it seems particularly suited to Canada, and if so, do you expect to have an advantage there in Canada, and can you bring that elsewhere, particularly in the cross border, some of that advantage, and really focusing in drilling down to see if that's your intention here with this particular aircraft?
Hi, it's Lucie. Absolutely, it is a very big competitive advantage for us, in Canada, for travel within domestic. And that's with the premium cabins, obviously -- but the second thing is for transborder, not only just for traffic between Canada and the US, but you can imagine an environment where we would have A220 is operating transporter sectors connecting to our international networks. So for us to be able to continue with our strategy to grow our presence, in this suite of markets, the 220 is actually a very, very solid, solid tool for us.
But there's no doubt even for domestic traffic, if you look at the 220 it is for sure, a competitive advantage. And you noted how much you appreciate it. The service on onboard customers are giving us the very same feedback. It's very, very well received.
Absolutely. Second question here is on travel propensity relative to prior seasonal trends, and certainly coming out of COVID, you were -- leisure ramped up quite significantly, perhaps above seasonal levels. Business travel, still lagging. We have a few internal metrics on propensity to travel that remain surprisingly high given -- there's been some disruption in travel plans recently. And there's a weakening economy and so forth.
But it still seems to remain high on leisure. Are you seeing the same thing, going into the fourth quarter here, that leisure seems to be seasonally high compared to pre pandemic? And secondly, anything on business travel? I know it's hard to measure, but I know you have good tools to measure that.
Any view as to I know, you would expected Lucie that to come back up to pretty much normal level almost by 2023, certainly by 2024. Any change in that view on business propensity to travel as well. So those two leisure and business?
Okay, maybe I'll start with, maybe I'll start with the business. So basically, we've seen steady improvements month over month with respect to corporate travel. And certainly we thought post Labor Day, we would see another level of improvement. And we did observe that.
The other thing that we've also, been able to sort of, you know, better understand is this new travel that is -- the purpose is business, but it's not necessarily contracted with a corporate accountant or Canada. So, just by looking at the characteristics of some of our customers, we can determine that, although they may not be part of a corporate agreement with Canada, we have pretty good insights that they are traveling for purpose business.
So for example, we can see the duration of trips, is extending a little bit. We can see, based on the days of week when travel occurs, how many passengers on PNR, et cetera. Based on that we're actually also observing some pretty good improvements, month over month. So, with respect to corporate, will we ever return to 2019 levels for pure corporate, the way we knew it. We’ll have to wait to see.
But there's no doubt that, we are seeing a new type of business traffic here, customers combining a business trip with leisure, there's, definitely new segments that are emerging post pandemic.
What I can also say is from an average fair point of view or from a yield perspective, the corporate demand is also quite solid. So, that's improving nicely, I would say.
With respect to leisure, there's no doubt that the comment you made at the beginning is very true. We continue to see levels for leisure demand, or leisure bookings that exceed 2019. And that is across most of our leisure routes. We look to the winter with -- we're quite encouraged. We're quite encouraged.
That's great color, Lucie. I really appreciate it. Thank you.
Thank you. We have no further questions register. At this time, I would now like to turn the meeting back over to Ms. Duran.
Thank you, Mo. Thank you again for joining us this morning. Once again, if you have any further questions, we invite you to contact us at Investor Relations. And we wish you a nice day.
Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.