Air Canada
TSX:AC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
14.9
24.57
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Air Canada
You don't have any saved screeners yet
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.
Thank you, Valerie. [Foreign Language] 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 with a brief 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 a.m. for questions from equity analysts, followed by questions from fixed income analysts, and of course, 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.
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 am very proud to see them win awards and global recognition for their efforts.We are very encouraged by the favorable revenue and traffic trends of the third quarter. There were strong increases in key passenger geographic segments, a record cargo performance, surpassing $1 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 cost 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, of 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, our return 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.
Thank you, Mike. [Foreign Language]. To begin, I too would like to thank our passionate employees who work tirelessly as we welcomed our customers back, and we're recognized with several distinctions at this year's Skytrax Awards, including for COVID Airline 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 operated nearly 87% more capacity than the third quarter in 2020, and about 66% less when compared to the third quarter of 2019.We're excited with the easing of Canada's travel restrictions and the reopening of the border to fully vaccinated foreign nationals. Our third quarter capacity represented a sequential growth of 178% from the previous quarter, making a meaningful point in our recovery. At the system level and exceeding our expectation, traffic measured as revenue [indiscernible] public demand 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're 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 had previously hoped, the faster than expected rebound in overall demand is driving optimistic expectations for the fourth 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 2/3 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 border to fully vaccinated American travelers.In August and September, we were virtually the only carrier to increase onboard 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. A strong VFR and leisure demand observed this summer gave us confidence to announce our summer 2022 plan, where we service to nearly 30 transatlantic destinations, including the return to leisure-focused destinations with seasonal service to Barcelona, Nice and Venice and year-round 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. We also recently increased our Toronto to Delhi service to 10 weekly flights. And last week, we began our new 3 weekly Montreal to Delhi service to coincide with this year's Diwali celebrations. 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 to South America, as countries continue to reopen, we are increasing our presence in several key markets this winter, with enhanced service to Sao Paulo and Bogota from Toronto and Montreal, and the resumption of our services to Santiago from Toronto. Also, we will serve Buenos Aires with one-stop service from Toronto and Montreal, connecting through Sao Paulo.I'd like to underscore that despite a slower-than-expected opening of the Pacific market, our 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, we can offset a slower Asia ramp up through 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 in 2019. Year-to-date, as Mike mentioned, we've now surpassed $1 billion in cargo revenues for the first time in our history joining a small group of passenger carriers around the globe to have ever achieved such a milestone. Together with the leadership team, I extend my congratulations to our colleagues at Air Canada Cargo who continue to progress, adapt and innovate.In addition to our record quarter, we recently broke ground on a 30,000 square foot temperature-controlled facility in Toronto, providing a world-class coaching environment for pharmaceuticals and perishable shipments at our largest hub. Investments and infrastructure, along with our dedicated Boeing 767 freighter fleet gives us the ability to continue to rapidly expand our cargo capabilities and capitalize on our strategically placed cargo hubs across the globe.Turning to Aeroplan, we were proud to receive the Excellence in Management Award at the Golden Loyalty Awards, recognizing the success of Aeroplan's strategic transformation. We also achieved strong third quarter results driven by gross billings from points sold in the quarter increasing 50% year-over-year, growth in member enrollment and strong credit card engagement. In fact, average card spend and new card acquisitions are both higher than 2019 pre-pandemic levels.When we re-launched the program last year, we made a commitment to earn our way into customers' everyday lives. Starbucks and our new landmark partnership with the LCBO launching in the fourth quarter are central to delivering on that promise, bringing in new members and deepening our relationships with existing members.Looking ahead, we will be launching our new Chase co-brand card in the United States in the fourth quarter and also expect to announce additional and expanded partnerships.So thank you. And with that, I will pass it on to Amos.
Thank you, Lucie and bonjour. 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 a negative EBITDA of $67 million in the third quarter of 2021, with the last 2 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 increased $297 million or 170% from the third quarter of 2020. The increase reflects the higher volume of fuel liters consumed, driven by increased flying year-over-year, as well as the impact of $180 million from a 39% increase in the fuel cost per liter, net of 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 a 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 A220-300s and spare engines. Aircraft maintenance expense was $153 million, up $108 million from the third quarter of 2020.The increase is 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 3 Boeing 787-9 aircraft scheduled to be delivered in 2022 and 2023. As for our narrow body 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 had previously determined would not be purchased. This brings our A220 firm orders to 35, with 3 A220 aircrafts scheduled for delivery in Q4.In October, we reached an agreement with Boeing to accelerate the delivery of 4 737 MAX 8 aircraft into the fourth quarter of 2021 from 2022. The remaining 9 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 8s in the narrow body fleet.With these 2 aircraft types as the cornerstone of our narrow body 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 not be certain of the length or depth of the downturn, this is why our support agreement in April with the government of Canada was important. It made available up to $4 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 accept the support refunds of nonrefundable 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, 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 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 increased 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 were posted on our website and filed on SEDAR this morning.I am 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.
Thank you, Amos. In summary, we have finally realized in the third quarter clear signs of Air Canada's potential, progress and recovery. We remain confident that these trends will continue and the direction over time will be upward, although it may be uneven. In the meantime, we're 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 is 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 the arrival later this quarter of the first of a planned 8 dedicated freighter aircraft. The last few months have not only shown Cargo's value in diversifying our revenue, but demand for its services can be expected to continue due to the increased e-commerce demand and persistent bottlenecks and other cargo modes.Third, we have carried on with our fleet renewal throughout the pandemic. Our fleet is right-sized 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 continued to advance towards our targets and collaborate with others on innovative initiatives such as the LEAVE LESS Travel Program that we recently launched with the 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'll 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. This 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 Canadian economy to recover and grow. Air Canada contributed 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 travelling 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 exemption have been put on an unpaid leave. We do believe, however, that with the combination of the 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 its elimination.I understand and acknowledge it 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 made difficult decisions to dilute our equity base in order to maintain a reasonable capital structure positioning us for future growth.We are in recovery mode with positive indicators like bookings pointing 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 value. Thank you.
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 in Toronto. We look forward to reconnecting with you in-person and are excited to showcase the actions we have taken and outline 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. [Foreign Language]Thank you. We are now ready for questions. Over to you, Valerie.
[Operator Instructions] Our first question is from Chris Murray with ATB Capital Markets.
I was just wondering if you could maybe elaborate a little bit on your commentary around booking curves and your thoughts around what we should be looking for Q4 and into Q1.
Hi, it's Lucie. So first, with respect to advance bookings, we have seen certainly in the last 2 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're actually seeing booking levels that are equal to what we would observed in 2019.So with respect to those geographies, the bookings are coming in solid. I do have to say those are -- it's not for the faint hearts because the booking velocity generally now comes in within 60 days from departure. But from what we've been observing and as we look at the curves, we're very confident that the capacity that we have in place for Q4 for the geographies that I spoke about and also Q1 is shaping up very, very nicely. The other comment I would like to make -- sorry, just...
No, no, go ahead please.
No, I was just going to add, the same also holds true as we look at summer 2022, we're also very encouraged with what we're seeing in terms of how the transatlantic markets are also building.
Okay. The one other question that I've been getting a little bit is around fuel prices. You did mention that maybe the curves are a little shorter. Can you talk a little bit about your ability to price fares in such a way as to reflect higher fuel prices?
Well, it's not necessarily easy, but listen, the way that we're managing through this obviously, we're very conscious of the escalating cost of fuel. And our goal has always been to maximize revenue onboard. 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's important for us to remain competitive, but we're more focused on our ability to optimize revenues. So the environment is quite competitive, but at the same time, it's incumbent on us to use the levers we have to be able to push up the yields where possible.
My last question, just on the fleet, it seems like just looking at the aircraft that you're adding, there's some expectation on your part, maybe a little more optimistic view than maybe in previous quarters. Can you talk a little bit about your thought process around adding additional aircraft to this point, and how you think that you'll be able to use those aircraft in the network?
Yes, good morning, Chris, it's Amos. Yes, so you're right, you can see there our optimism a little bit as we have better line of sight on the recovery and reviewing our fleet plan going forward. We can -- we tried 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's one that I can't give you the magic plan here, Chris, but I think you'll see -- you've seen by the results we have talked about today in terms of accelerating some deliveries, additions 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'll see how -- where demand lies and what opportunities make it reasonable for us to build business cases to further invest capital.
Our next question is from Savi Syth with Raymond James.
Just first of all, I'm just kind of curious if you could provide and I know it's not exact, but at high level, what you're seeing -- I know you mentioned leisure and VFR are taking the lead, but just kind of curious where kind of leisure levels are versus 2019 in the various entities and where -- what you might be seeing from a business level as well?
So #1 I guess when you refer to business travel, if we talk about corporate for a minute, there's no doubt that in Canada, domestic Canada has led the way in terms of corporate business, but we are lagging behind what we are observing in the United States. And we're pretty confident that from 2022 when corporate Canada returns to their offices and business travel should return, but no doubt that for us, business has dried a little bit.On the flipside, 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's many segments or many markets that we actually operate in and we continue to operate where we were able to produce some pretty good results in the premium cabins.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've done. And when we look at some of these markets when we commented a bit earlier and some of these leisure markets we're actually anticipating that by the time we reach Q1 or Q2, we will actually be at 2019 levels. Advance bookings, particularly in the sun region are very, very good.Leisure markets are performing very, very well. And in some of these VFR markets, I'll touch on India, for example, but there are quite a few like that where we've introduced, for example, new route on Montreal-Delhi was just recently launched, and we're extremely confident that those markets will continue to perform very, very well for us.
Just following up on that, Lucie, appreciate the color. Is there -- from a business standpoint, are you hearing anything from your corporate clients as to kind of when or how much they plan on traveling in 2022?
I mean, it's difficult to assess. I mean, we'll see when the bookings start to come in. I mean, I have to say domestically we see improvements week-over-week, but not as fast as we would like to see. And we're seeing similar trends on trans-border markets. The corporate business is starting again, trans-border. It's just a little bit slower than we would like. On the international markets, I think it will take a little bit more time.
Makes sense. And if I may, on the cargo front, could 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 a dedicated freighter is going to be sufficient to offset kind of the loss production on that size?
Yes, as Mike indicated earlier, so the freighters will start going into service at the end of this year. And then obviously progressively, the freighters will be coming into service over time. Starting in the first quarter of 2022, some of the aircraft that are now configured to accommodate cargo will return to passenger. But at the same time, you have to keep in mind that we're launching several new international routes, which actually means that we'll also have valid space for cargo. So I think overall, if you look at how the plan is going to transition, we should be in very good shape.
Our next question is from Walter Spracklin with RBC Capital Markets.
So I'd like to go back to the trends and not necessarily near-term trends as indicated by your booking curve, but just conceptually there's 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's a little bit of pessimism early -- in early days talking 2025 or later. Now that's 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 warrant? And do you believe that 2023 is -- is that even a shot here given everything that you're seeing going forward?
Obviously, there's no textbook on this type of recovery or any history. There's no doubt we're very encouraged by what we see, and there's no doubt that the length of the recovery has moved in from consensus of 2025 to at least 2024 and maybe 2023. And I think that's 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 talked about, we were very conservative in how we managed our fleet through the pandemic. We are -- but we provided ourselves options to grow quickly, and you've seen us step into some of those options 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.
Okay. That's great. And 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 WestJet's competitive response to the way they're coming back and rebuilding their operation that would give you any cause for concern?
Yes. At a very high level we're 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're 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's been tailored just not for the business market, but for the leisure market as well and with some of the key features that we've added.And so I won't spend a lot of time on Aeroplan, but it gives one of our key strengths in how we're going to compete on a go-forward basis. But again, Walter, we're not seeing anything in the marketplace that surprises us.
Perfect. And just last question here, and this is on one of your strengths as well, is 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, exists. 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 -- and 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?
Yes. So 2 parts to that question. One, let me -- let's be clear. We do not see a pilot shortage, full stop. We -- we're very comfortable with our numbers. We're very comfortable with our ability to recruit if we need extra pilots. And second part is on the Jazz upflow agreement, it did certainly work well before the pandemic. We obviously haven't dealt with it during the pandemic. And -- but it was a -- and it will be as we go forward an important tool for us to have pilots move up through the system.
Our next question is from Konark Gupta with Scotiabank.
So maybe the first question, perhaps more for Amos. Like for Q3, I was just kind of wondering like it's a pretty remarkable achievement of exceeding your cash flow guidance by $500 plus million. 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?
I'd 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 booking cycle and all, which we knew it had been shortening up as we've seen during the course of the pandemic, but a lot of activity in the months within the quarter, so the majority of that increase in cash flow is from earnings and then the other part is then from bookings, from advance ticket sales.
And then perhaps for 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. Where do you anticipate that capacity increase quarter-over-quarter coming from largely? Am I guessing right if it's going to be more like some destination and trans-border, or you still have some leg up in domestic and transatlantic?
So basically, yes, for sure, the sun. And that's traditional going into the fourth and first quarter. But the other two services where we're seeing a pretty rapid ramp-up would be the U.S., the trans-border routes. So as we indicated earlier, we launched several new routes on the trans-border front and also the transatlantic. Those are really the areas where we see the biggest ramp-up going into the winter.
And then with respect to the fourth quarter, I understand you guys are not providing guidance for cash flows or cash funds, but if you can at least help us understand directionally. With capacity and demand seems to be going up heading into Q4 than Q3, but on the other side of the equation, you have fuel, obviously, consumption will likely go up with that incremental flying, but fuel price is also going up from Q3. So there's some puts and takes in Q4 versus Q3, and then I don't know if you have any comments on wage subsidy benefits if you're anticipating anything there. So is there anything else that we should be thinking about when evaluating Q4 cash flow profile versus Q3?
No, not much else. I think, Konark, you really -- you touched on really the highlights, the puts and takes that there will be going into that into Q4. So I think, again, you've sort of seen our confidence. We have strong liquidity, and so again, our strong liquidity, we're focused on the recovery and rebuilding the network and going back.
And then lastly for me, like if we go back to 2019, I think some 20% of your passenger revenue came from business scale, and 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 how much -- like what portion of the 2019, passenger revenue are we talking about here that's going back to 2019, levels? And what is the other remaining pieces?
Let me see if I can maybe break it down for you here. You are right. So in years past, there was approximately this split. But now with a 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've been able to unlock with premium leisure J, new ancillary sales, for example, opportunities for us to get more revenue into the premium cabins, those are all -- and I should also add the improvements that we're 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 over time. But we're assuming that by the time the corporate demand in mid-2022, comes back, hopefully we'll be back to a similar mix. But in the meantime, there are other opportunities for us to compensate.
Our next question is from Helane Becker with the Cowen.
Just as you -- in the U.S., you see the 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 on the -- taking up the seats that you would have been selling to corporates?
Hi, Helane, it's Lucie. Yes, we are actually -- and if you look at the recovery by cabin, our premium revenues and PY revenues, clearly when you look at it from a growth year-over-year, those two cabins have recovered faster than the Y cabin. So for the reasons that you mentioned and so for example, these new premium opportunities that in the past we would not have -- we would not have used the word cheap, but I mean, in this kind of environment these were new markets for us.And obviously, there was potential there, so we did everything we could to go and counter it. And at the same time, our ability to put in more Aeroplan traffic in our premium cabins, we're 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 a bit easier because there was a corporate of pushing the demand that was for corporate and we know that would return. But in the interim, not spoiling those seats is also very critical. And we found opportunities and new markets to be able to capture those revenues.
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?
It's nice to hear you again. Yes, so look, we look at both elements obviously the advantage and disadvantage of a strong Canadian dollar or weak Canadian dollar given the fuel price and all. But what we look at also most carefully and in decisions to hedge is actually what's 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 at a year, price per barrel drops $12, so it's hard to find yourself in a position here where hedging makes economic sense.As you know, we've 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 that opportunity there to catch a little bit of insurance there is less meaningful 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.
Our next question is from Tim James with TD Securities.
I guess my first question, Lucie, maybe you mentioned that you're seeing certain markets could be back to 2019 levels in the first quarter of next year, I think that was what you mentioned. And you cited some destinations as an example. Is that -- when you say returning to 2019 levels, is that in terms of traffic or revenue or both?
It's actually both. But when we're looking at the advance bookings, so that was a point that we were making really earlier, when we actually look at bookings that are generated on those services for the first quarter, the amount of bookings that we're taking on a daily basis is in line with what we would have captured in 2019. So we may not quite yet be at 2019 load factor levels but in terms of booking velocity, we're 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 and again, we know about the fuel issues so of course we're doing everything that we can to move the fares up where possible, we're very conscious of the yield environment. But certainly on the Sun, the curve is shaping up very nicely.
I guess, and forgive me if you 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's COVID or being away from work? Are there any sort of labor availability challenges that you're facing today or are you feeling good about your position and the availability of all the employees that you need as you ramp up capacity?
Craig Landry here. Yes, as you know certainly -- what we're finding is we're recalling our employees is that we get a very strong response. And we've had, as Mike has mentioned earlier, we've recalled 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've already begun new hiring employees to come into the company as fresh new employees as well.So what we're seeing so far is a very strong response to that. There's a lot of appetite and a lot of interest from to -- want to work at Air Canada. And we've not observed any challenge that you've seen other airlines having in terms of their struggle to meet their scheduled demands. In fact, we've been able to successfully operate, well in the high 90% of all of our flights as planned and scheduled. So we're not observing the same challenges that you're seeing elsewhere.
Just wanted to return then into an earlier comment about the movements or the uptake of premium seating even 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's likely that they will revert to sort of more traditional buying patterns once conditions normalize, whether that's next year or 2023 or 2024, or do you think there's a tendency for people to kind of stay at a higher price point once they've kind of tested it out?
To answer your question in terms of us having access to some historical data, there's no doubt that for some markets, we did have a little bit of history in years past. And also, we're able to use the data that we have for some markets that we operated and sort of replicate what that might look like in some other markets. So from that perspective, we did have a little bit of information to be able to use.And the interesting thing is, as we progressed through the pandemic, we were able to come up 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 stay. I think there's 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 tip some of these models to see, to your point, what sticks. So I think we've 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 tour operator traffic. And my suspicion is some of those products will continue.We also worked quite a bit on our offerings for seat selection. And this is another good source of revenue for us. We were able to extract good dollars for seat fees in different cabins and also different paid upgrade programs. So we've learned a lot through this period, and obviously we're going to look to retain the products that customers have appreciated. And at the same time, there's 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 were pretty confident that some of these products will stay.
Okay. Yes, I would think it'd be sort of an interesting kind of marketing opportunity almost for you to have some of those passengers sort of try something at a higher price point, so. 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 after. They're not terribly rational, so they probably don't -- aren't like many of your passengers.If I could just squeeze in one last quick question, I know it's 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 not anticipating or expecting it anytime soon, but I'm just wondering about your thought process there?
Tim, it's Amos. I think actually what Valerie mentioned at the end is we look forward to our March 30 Investor Day, and I think that's where you'll see us back on sort of our metrics as we had done before of lining out what our aspirations and targets are and provide some more insight as -- we need a little bit more time here as we're seeing how the recovery is unfolding and putting all that together. So stay tuned for March 30.
Our next question is from Cameron Doerksen with National Bank Financial.
Maybe just a couple of balance sheet questions for Amos. I mean, you've 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?
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 at various tranches there. So no, there is no cost to that. The only cost in terms of the programs is what we've drawn down on the refund facility which, as you know, is a 7-year money at 1.2%. So very low cost financing there to essentially repay the nonrefundable tickets issued.
Right. And just another balance sheet question, I mean, what's your ability to kind of accelerate debt repayment here? I mean obviously, if things do recover as expected here, if you're just sitting with quite a bit of cash on balance sheet, presumably free cash flow is going to inflect even more positively. So just talk about your ability to kind of accelerate some of the debt repayments?
There's right now sort of limited opportunity to accelerate some, but there are other -- there's some amount that could be accelerated, but it's 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've seen here mentioned, we're purchasing the aircraft with cash coming up, so using cash there to fund CapEx investments. So that's sort of a general flavor right now, Cameron.
And just to add to that, Cameron, it's Mike. Amos and the team -- collective team have done a great job of putting together the debt structure of the company. And the weighted average interest rate for the -- our total debt is sub-4%. And so there are -- we've gotten rid of the high-cost debt, and so now we're very, very comfortable with the sub-4% weighted average. And so there is -- there are some floating debt we could pay back. But again, we've locked in -- with rising interest rates, we've locked in a fair amount of the debt right now.
Okay. No, that makes sense. And just a second question for me, just on the testing requirements, Mike. You mentioned that your view is that the PCR pre-departure test unnecessary, I think that's 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've got a family of 4 and you have to get a PCR test at either end of the trip, I mean, it's -- 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 that's another sort of step change in potential demand recovery?
There's no doubt, Cameron, it would help. We don't have numbers as to what the incremental demand would be without that -- with that test. But obviously it is -- one, we don't believe it's required from a safety perspective. That's the key issue from our perspective, but we do -- certainly would help demand. We just don't know what that number is.
That is all the time we have for questions. I will now turn the meeting over to Ms. Durand.
Thank you very much, Valerie, and thank you for joining us today. Again, we remain available should you have any additional questions through our Investors Relations team. [Foreign Language] Thank you, and have a nice day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.