Cargojet Inc
TSX:CJT
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Cargojet Inc
Earnings Call Analysis
Q3-2023 Analysis
Cargojet Inc
Cargojet's third quarter earnings call began with an introduction from Pauline Dhillon, followed by the participation of key executives, including President and CEO Ajay Virmani, who provided an overview of the company's performance against a backdrop of macroeconomic challenges. Despite facing industry-wide pressures, such as a shift in consumer spending from discretionary to essential goods, Cargojet demonstrated revenue growth and a resilient diversified business model.
A cornerstone of Cargojet's strategy against market headwinds involved a proactive capital expenditure (CapEx) management approach. The management highlighted a significant reduction in planned CapEx, including the deferral or cancellation of certain fleet expansion plans, leading to a decrease of $450 million. Specifically, 4 of the 8 Boeing 777 aircraft. The divestment of assets, like the 4 Boeing 757s, and the reassessment of future growth expenditures, underscored the company's careful capital allocation aimed at optimizing cash flow and reinforcing shareholder value through stock buybacks and a 10% dividend increase.
Cargojet faced a 30% increase in jet fuel prices, which impacted their profit margin due to a two-month lag in fuel surcharge revenue adjustments. However, when examining direct cost per block hour, the company effectively maintained cost control. By selling non-essential passenger aircraft used during the peak of the pandemic for pilot repositioning and implementing a long-term incentive plan for recently hired pilots, Cargojet demonstrated a clear commitment to optimizing expenses while rewarding and retaining crucial personnel.
The earnings call addressed questions about the decrease in ACMI revenue, which was attributed to a lesser average stage length of routes compared to the previous year. Despite this shift, Cargojet expressed confidence in its ongoing relationship with DHL and expected growth with the delivery of additional aircraft in 2024.
An important part of Cargojet's financial strategy involved asset sales such as the sale of Boeing 757 freighters. Although these assets were listed for sale, they could alternatively be used for charters or ACMI, with management expressing confidence in achieving or closely approaching their anticipated sale proceeds. Furthermore, Cargojet highlighted the intrinsic value of these assets, indicating that even if the aircraft aren't sold, the components like engines and landing gears could significantly reduce maintenance CapEx.
Cargojet saw significant strength in its ad hoc charter business, thanks to having extra aircraft and crews available around the clock. The demand in this segment was robust and expected to carry into the following year. Management indicated that this momentum is partly attributed to availability due to reductions in domestic flights, which has allowed more flexibility to capitalize on the ad hoc charter demand.
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Good morning, ladies and gentlemen. Welcome to the Cargojet conference call. I would now like to turn the meeting over to Pauline Dhillon. Please go ahead, Pauline.
Thank you, operator. Good morning, everyone, and thank you for joining us today for our third quarter results call. With me on the call today are Ajay Virmani, our President and Chief Executive Officer; Jamie Porteous, our Chief Strategy Officer; Scott Calver, our Chief Financial Officer; Sanjeev Maini, our Vice President, Finance. After opening remarks about the quarter, we will take questions.
I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs and strategic plans are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA, adjusted earnings per share and return on invested capital. Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to the forward-looking information and for reconciliations of non-GAAP measures to GAAP income.
I will now turn over the call to Ajay.
Thank you, Pauline. Good morning, everyone, and thank you for joining us on the call today. Despite the backdrop of macro headwinds and market conditions, I'm very pleased with our results. While our EBITDA was negatively impacted by fuel surcharge lag, we were able to report revenue growth. Our diversified business model continues to show resilience.
Transportation and logistics industry is the backbone of economic activity. If the economic activity slows down, it affects all forms of transportation, rail, air and ground as we all feel the impact.
We are seeing an interesting mix of transactions in the market. As many retailers have already started in their earnings reports -- stated in their earnings reports that the spending on discretionary goods is slowing down, but more of the household dollars are being spent on daily essential goods.
For us, it's the number of packages that drive our business. So further growth in the household essential goods is offsetting the declines in the discretionary goods transactions.
But as I have stated before, we are not immune to macro factors. While it's true that we cannot control the aggregate demand, but there are many areas of business where we can drive performance.
Let me touch on a few areas where we're making a significant impact. At the highest level, our priority is cash flow management. We have continuously found ways to defer or cancel several aspects of our CapEx plan announced in the Investor Day. All of our fleet decisions had optionality, which allowed us to delay or cancel certain aircraft purchases. As a result, we have significantly reduced our planned CapEx and there may be more opportunities. Scott will provide some color on the CapEx a little later on.
Equally important area of focus is cost management. I'm seeing examples of cost savings every day from my team and very encouraged with the new culture of frugality that is setting in at Cargojet. This took some time given the fast paced growth we handled during COVID period, but the new market is setting in -- new mindset is setting in very fast.
In our business, the biggest cost driver is capacity utilization. We are very pleased to work closely with our customers to optimize our network, so we can avoid flying suboptimized routes and reduce block hours. This is an area of core strength and differentiates us from others.
All contracts with each of our strategic customers are now renewed for longer term such – as much as 2029 and 2030. Despite new entrants in the air cargo, we feel confident in our competitive position, in both domestic and international markets. We do not see much of an impact any of these new entrants have made in the Canadian cargo scene.
With all these actions undertaken to further strengthen our business model, we are even more confident that our ability to come out stronger on the other hand of the economic segment.
Therefore, Cargojet's Board just approved a share buyback program through the normal course issuer bid. We believe there is true opportunity to create value for shareholders by purchasing common shares. We also announced 10% increase in dividend payouts in line with our previously stated strategy of annual dividend growth.
Our focus on service, quality and on-time performance continues to win customer base, and it will always remain the bedrock of who we are. Every team member at the Cargojet understands that.
As I always say one thing and we do it well, we do not have to make trade-offs between passengers and cargo. Every package on our network flies first class. That includes -- that concludes my prepared comments. But I must add that the on-time performance of our quarter 3 this year, again, was stellar at 99.5% on-time performance, and that's what makes Cargojet what it is today.
I will pass on the comments to Scott Calver for an update on the business side.
Thank you, Ajay, and good morning, everyone. I would like to start with more details in regards to Ajay's comment about the CapEx reduction. We have so far reached a reduction in capital expenditures of $450 million. The original plan included 8 Boeing 777s, the first 4 to support growth with strategic customers and the last 4 for what we refer to as general growth. What has been canceled is the last 4 777s. The sale of the remaining feedstock was completed in the third quarter.
It should be noted that we continue to hold the conversion slots for the 777s designated for general growth, conversions that could take place in 2025 and 2026. The deposit for these conversions is not material. This allows for additional optionality in the event the market turns and Cargojet is successful in securing long-term contractual revenue.
We have also listed 4 Boeing 757s for sale. Ajay commented on the second quarter earnings call that we had a surplus of 757s and that we were exploring our options. While these are listed for sale, we will continue to entertain dry lease opportunities and we are pursuing other opportunities such as scheduled charters, ad hoc charters and any opportunities that may arise during the fourth quarter peak season.
The sale of the Boeing 777 feedstock and the potential sale of the 4 Boeing 757s converted freighters is the $450 million I referred to earlier. As Ajay noted, we continue to monitor the market conditions, and we will explore additional opportunities for further reductions if need be.
At the end of the day, we anticipate the vast majority of growth CapEx will be completed towards the end of 2024. Maintenance CapEx will continue to be in the range that we have previously disclosed.
With the changes in future growth CapEx, this now brings me to my next point. The company now expects to return to normalized free cash flow and the timing is sooner than previously expected.
We are excited to start to purchase and cancel common shares. At these current share prices, a share buyback program is likely to be highly accretive. Given that Cargojet can delever quickly, we are confident that Cargojet debt level will be managed to ensure that we continue to have a strong balance sheet.
Along with the intent to purchase shares, we are also excited to increase our dividend by 10%. Cargojet has a long track record of increasing dividends. This increase reinforces our commitment to return value to our shareholders.
The last topic that I would like to update you on is our progress with managing costs. The third quarter was a challenging quarter as jet fuel prices increased over 30% throughout the quarter. As we have mentioned in the past, our mechanism for fuel surcharge revenue has a 2-month lag. Over time, changes in jet fuel prices are neutral to profitability. When the price of jet fuel increases, we have an adverse impact to profitability. The inverse is true when jet fuel prices reduce.
The best way to assess Cargojet's progress in managing costs would be to calculate direct cost per block hour, direct expenses excluding fuel, depreciation and amortization. When doing this, the direct cost per block hour in the third quarter is flat to the second quarter.
For a more granular view of our cost structure, I would like to bring your attention to one of our cost-saving initiatives. Earlier in the year, one of these initiatives was to sell our smaller passenger aircraft. These were required to reposition pilots at a time when commercial flights were not reliable or even available.
The savings from not using owned passenger aircraft is reflected in the line in our direct expenses called aircraft costs. There is a partial offset to these savings in the crew line within our direct expenses as pilots now are able to fly on commercial flights. It is best to look at aircraft costs and crew costs in aggregate. When you do that, you will see that these costs are $1.8 million lower than the prior year.
You will see a slight increase in our run rate compared to the second quarter of 2023. The reason for this small increase in the third quarter is that a new long-term incentive plan was implemented for pilots that have been most recently hired. Cargojet has a long-term incentive plan as a tool to maintain industry-leading pilot retention. Investing for this new program for recent hires goes out to the third quarter of 2029.
In conclusion, as management prepares for any lift in revenue for the fourth quarter peak season, any potential lift, we are confident that we will continue to manage costs in any scenario.
This concludes our prepared remarks. I will now hand the call over to Ajay for any questions.
Operator, please open the line for Q&A.
[Operator Instructions] We will now take the first question from Matthew Lee, Canaccord Genuity.
I want to first ask about the ACMI business. Can you maybe just talk about the decrease quarter-over-quarter and year-over-year, any one-time items impacting numbers? Or is that just a specific [ site ] to be rerouted. And maybe do you feel confident that DHL is still coming to take all those new aircraft coming 2024?
Matthew, it's Jamie. I can take that one for you. The reduction in ACMI revenue during the quarter was just a reflection of the shorter stage -- average stage length of the routes of the aircraft that we fly for DHL. If you recall, last year when demand out of China was very strong, we were operating 2 aircraft on an ACMI basis for DHL from Shanghai through Vancouver to Cincinnati. And when that demand dropped in the fourth quarter, they had to shift those aircraft to North America and South American route. So it's just to reflect the same number of aircraft that we’re operating this year as we were operating last year just on shorter stage length through [indiscernible] the only reason for the difference. And yes, we are confident that we will continue to grow the relationship with DHL with the additional aircraft next year.
Great. And then maybe in terms of CapEx, I think in the MD&A you mentioned the bulk will be done by the end of 2024. Can you just maybe help us think about the magnitude of step down going into 2025?
Matt, it's Scott here. I can take that one. Really, most of it should be done towards the end of '24. There will be some carryover into 2025. But when we're doing these conversions, most predominantly it's the first 4 777s. We're making progress payments at different milestones throughout that conversion process. So we're going to be pretty close to the end of that conversion process, so most of those costs will already be incurred in 2024, but there definitely will be some small carryover into 2025, but not all that material.
Right. Under $50 million kind of thing?
I think that would be fair, on the conservative side.
Next question is from Konark Gupta from Scotiabank.
Just wanted to follow up on that CapEx question, Scott. Can you help us explain the math on the net $200 million growth CapEx? You have 6 more aircraft coming in, right, 4 777s and 2 767s between now and '24 and then you have some more feedstock that's left to be sold or monetized and some 757s. What are you using for the remaining cash outflow for aircraft purchases, what's in net offset to that from sales?
Yes. Really, at this time, Konark, it's really all about the 777s making the progress payments through to completion.
And I don't think we are converting the 2 767s, Konark, that you were talking about.
Yes. We have that owned as feedstock right now, but we haven't made commitments to convert those at this time.
So they are definitely on hold, and we have no plans to convert the 2 767s any further at this time.
Okay. And what about the pending asset sales you have? What's the cash inflow from those asset sales?
I'm sorry, can you repeat that question? You broke up a bit there, Konark?
Sorry. Yes, I'm saying the aircraft sales that you were planning, right? I mean you still have some more to do. What's the cash inflow that’s left to come in?
Okay. Well, we're done selling our feedstock. We had to sell 3 of the last 4 777s. We never had any investment for that eighth 777. So really, we had number 5, 6 and 7. We communicated in Q1 that these assets were held for sale for disposal, and we did that through -- from Q1, Q2. It was finished in Q3. There's a little bit of cash flow coming in, in Q4, just for the insurance proceeds. So you'll see a little bit held there just from a cash flow perspective, but that just came in subsequent to quarter end.
Now you're talking about the 757s. The 4 of those, generally speaking -- this always changes. The market conditions always change. But generally speaking, we would expect something like $120 million for those 4 fully converted 757s.
Okay. And then just to follow up on the peak season. So the commentary you guys made in the disclosure as well, so you're expecting it to be muted this year. Just comparing versus last year's peak season, that also seemed muted. Would you put the seasons to be similar in both years? Or you think this year's peak season could be even worse than last year?
Konark, it's Jamie. No, we don't expect it to be worse. We would expect to -- the forecast that we've had sort of consensus from our customers is that they expect similar volumes in peak of this year to peak of 2022. So I think if memory serves me right, I think our Q4 volumes were up about 10% to 15% over Q3 of last year, and we would expect similar this year.
The next question is from Cameron Doerksen, National Bank Financial.
Just to go back to, I guess, the 757 pending sale, the $120 million you talked about, do you have -- I guess you have some confidence you'll be able to sell those planes in the next 12 months?
Definitely. We are in ongoing discussions. They're also available for ACMI. They are also available for charters. As a matter of fact, in peak we are bringing one of them back because we have a number of charters that we already booked. Although they are part for sale, we still use them. And we feel that if we don't get $120 million, it's not like -- we're not fixated on it. If somewhere close enough that there will be a deal done at that point. But keep in mind, Cameron, there's also -- these aircraft are brand-new conversions with very good engines.
So what's the worst case scenario, if the market doesn't have any need for these aircraft? I can tell you the spare part, the landing gear, the engines are worth over $80 million on these aircraft, which we would take them out and put it on our existing fleet to defer maintenance CapEx. So it doesn't give us any sleepless nights that these aircraft are not sold as of today. So we do have an alternate use. We don't have to send over engines for overhaul because we overhauled 8 brand-new engines sitting on these aircraft [indiscernible] landing gears, avionics, flaps.
We've got so much stuff sitting on these aircraft that if we were to start taking parts, our parts costs would come down, our engine overhauls would come down and we can get, as I said, $80 million to $90 million reduction in CapEx by just using those parts. So that's obviously the worst-case scenario or the backup.
Right. Okay. That makes a lot of sense. And just secondly for me, just on the all-in charter like another quite strong quarter for you. Just wondering if you can talk about how that business looks for the next few quarters? I know typically in Q4 you'd be busy with the -- using the aircraft on your scheduled business. But what -- how is that business evolving, the all-in ad hoc charter business?
It still continues very strong, Cameron, and we expect sort of the trend that we had in Q3 to continue in Q4 as we have extra aircraft available and extra flight crews to take on additional [indiscernible]. That's one of the reasons for the strength. The demand is still very strong on the ad hoc charter segment of our business and the fact that we have aircraft available and crews available, literally 24 hours a day, we're taking advantage of those opportunities, and you should see that trend continue in Q4 and even into the new year.
Okay. So we should think about -- I mean, it was a very strong Q4 last year for that line item. So we should probably expect a similar strong performance this Q4.
Yes. That would be fair. I would expect that.
The next question is from Kevin Chiang from CIBC.
Just as a clarification, the $200 million in growth CapEx on that -- it is net growth CapEx. You've highlighted in your MD&A for 2024. I'm assuming that -- that’s assuming the sale of the 757, so the $120 million worth of proceeds or how should we be thinking of that, I guess?
Yes, Kevin, that's right. That's net of -- so that's net CapEx, net of any sale proceeds.
Okay. That's helpful. And then I guess with the NCIB, just wondering how you're thinking about deploying that. Is it primarily taking the proceeds from these asset sales to repurchase shares? Are you focusing on the [indiscernible] leverage ratio before you start buying stock at these levels. I understand and I agree that it's obvious how the accretive [ down ] where your stock is today, but just wondering how you're thinking about deploying capital towards the NCIB over the following 12 months here.
Yes. It's definitely a combination of those 2 things, Kevin. We do have -- at these share prices, obviously, we've got to create some value by buying back shares. We're going to have a bit of tolerance for a little bit more leverage than what we typically targeted in the past. And the reason being is because how quickly we can delever. And now that we're getting reasonably close to the end of this growth CapEx, it just adds the certainty with everything that's settled into our run rate that we can expand a little bit on leverage. And so absolutely, the sale of 757s helps with leverage, and it creates more capacity to buy back more shares.
Okay. And maybe just last one for me. Domestic was nicely up quarter-over-quarter. And then in the prepared remarks, you talked about working with your customers to deal with their changing needs. Maybe just -- what did you see in Q3 versus maybe what you saw in Q2 on the domestic side? And then just any color on the comments around, I guess, adapting to the changing needs of your customers? Is that primarily around the shifting schedule you've talked about? Or are you looking to help your customers in other ways?
Kevin, it's Jamie. Working with our customers was really adjusting the schedule to allow us to reduce block hours and reduce the capacity that we fly on the domestic network to more closely meet the demand. The domestic revenue, you're right, it was -- quarter-over-quarter, we saw a good increase. The trend is certainly good. I think in Q3, we were -- in terms of total weight -- in our chargeable weight, we were flat year-over-year, about 100 million pounds on the domestic network. And that compares to, I think, we were down 10% in Q2 year-over-year, and we were down 12% in Q1 of this year versus the previous year.
So sequentially, the trend is moving in the right direction and it is a good positive sign moving into Q4 for peak season this year.
So just underlying demand is improving sequentially. That's a good point.
The next question is from Tim James from TD Cowen.
I just wanted to -- first of all, Jamie, if you could just talk about why do you think the ad hoc charter business -- it seems to me, and correct me if I'm wrong, that it's pleasantly strong. I'm just wondering what is it that's keeping the market relatively strong for you? Is it just because you've got the capacity available, so that you can kind of use that in the market? Or is there something in the demand environment that's creating more strength than you would have anticipated?
No. I think, Tim, that the demand is always there. Our limit -- we've been limited -- during most years, we're limited in our capability to react to that demand because we traditionally have -- or historically, we don't have any aircraft that are -- or flight crews that we dedicate to the ad hoc charter business. It's all utilizing existing aircraft that are part of either our domestic or our ACMI revenue segments and the flight crews that are part of those segments.
During a more normal year, our availability is somewhat limited. It's usually to weekends and during the day when those aircraft aren't flying in the domestic network or on ACMI segment. But this year, with additional aircraft availability in our fleet because of some of the reductions we did to the domestic flying, we've had aircraft and crews available 24 hours a day, 7 days a week. So that's led us to be able to not just quote on all the available charters but actually to successfully win that business and perform those charters. The demand continues to be very strong. It's just we haven't necessarily had the aircraft out there to be able to react to it in previous years.
The other factor is when the markets for airfreight and any general cargo, you've seen the slowness we are seeing in the market. Charters normally pick up because a lot of people have urgent needs or goods to get there because they're not shipping regular airfreight, they're not shipping regular truck freight and all of a sudden, they need something, they need to fly it out. So they would rather spend on a charter on an ad hoc basis than pay regular airfreight all day long. So there is some correlation to when the market slows down, the charters do pick up.
Okay. My second question, and maybe I'll leave ad hoc charter out of this question. But just in terms of the rest of the business, could you comment on what, if anything, you would say has changed in your outlook since you reported the second quarter. And correct me if I'm wrong, I think you'd kind of anticipated a muted peak season, which you're talking about now. But is there anything, whether it's pricing related or volume related either in sort of the way DHL is setting up your capacity or whether it's in the domestic market, just anything that's changed in your sort of outlook from 3 months ago?
Let me start and then Jamie can add some color to it. Well, what we have noticed is that the global shipping is down, and it's -- 90% of the impact is coming from the Far East Asia and China market. So a lot of Chinese product just not only comes to North America, it goes to South America, it goes to [indiscernible] it goes to a lot of places. So our customers, primarily the big ones tell us that the China business is down 40% right now. So that's what sort of dictates a lot of specific North American movement, specific European movements, intra-Canada, a lot of intra-American to Mexico.
So that's what we have noticed that, if that slowness was there, we'll all be doing well. And that also, if you look at some of the ocean lines results, you'll see that they're having the same issues of not having enough volumes to go. And it all starts with that side of the globe, especially China when the business is slow out there, the rest of the world find it to be very slow in other areas.
Just adding to that, Tim, specifically on our domestic business, as I mentioned in response to one of the questions earlier, sequentially, quarter-over-quarter, we've seen a good trend where we're flat year-over-year versus Q3 of last year, where we were down close to 12% at the beginning of the year on the domestic business, and we have adjusted our block hours and our flying and our costs accordingly to maintain our margins.
And the ACMI business, as I also mentioned earlier, it's only lower because of the average stage length of the flights are less than they were when we were flying to China last year and a couple of aircraft for DHL. But in both those segments, all the customers, whether it's an ACMI customer or a domestic customer, have minimum volume or minimum revenue guarantees, and they're all well above those minimums.
So we've seen a positive trend and also not that it has a direct correlation to our business, but another global trend I think IATA reported -- their reports lag by a couple of months. But I know in July, they had reported that global air cargo demand was only down 0.8%. And then in August, for the first time in 19 months, overall demand grew by 1.5%, not a big number, but the trend is certainly in the right direction.
The next question is from Chris Murray, ATB Capital Markets.
Jamie, maybe talking about '24 and really look into the year, how are we thinking about -- or what are you getting back from your customers around the different moving parts around both ACMI and the domestic business?
I think everybody is still a little cautious about what 2024 is going to look like in terms of volumes. I think we would expect with the annual rate escalators that we have on the anniversary date of all the major agreements, both domestic and the ACMI, you'll see a bit of an uptick in revenues just if volumes remained flat. And the organic growth, I would say we're factoring probably mid-single-digit percentage growth on the domestic business year-over-year and something similar on the ACMI.
Okay. Any new contracts in ACMI that we should be thinking about that come into play?
Not right now. We continue to -- obviously, a big part of our ACMI business is DHL. We continue to work with them and grow with them. And we have other -- we just renewed Canadian North, which is a smaller ACMI agreement that we have 5 aircraft that we operate between Ottawa and Winnipeg and Iqaluit during the day. We renewed that for several years, and we continue to pursue other opportunities with various customers, but nothing imminent.
Okay. My other question is around margins, and I'm not sure who wants to take this one. I guess in Q3, there was sort of the lag in fuel surcharge pricing coming through the system. I'd assume that might catch up in Q4, but maybe get some color on that, that would be great. But with the volume that you're looking at year-over-year, but some of the other initiatives, it sounds like on the cost profile, how should we be thinking about EBITDA and EBITDA margin this year?
And any thoughts about even if we stay, to your point, maybe kind of mid-single-digit type growth next year, do you think that margins have a reasonable chance of expanding as we go into 2024.
Maybe I'll take the first part of that question, Chris, and then I'll hand it over to Jamie with that quality of revenue mix issue for next year. The fuel surcharge, yes, that -- it all -- we all saw that happening throughout the quarter, the steady increase in jet fuel prices and then that Statistics Canada index that guides our fuel surcharge program. Now you're asking about Q4.
We still have several weeks left in Q4. And that's what really hurts us is that weekly change in jet fuel prices each week. We have that inflation immediately. And then, of course, it takes that 2 months for it to catch up. So -- but yes, you're right, the first part of Q4, it's going the other way, which is great, but we still don't know what is going to happen to the end of the year.
And then you talked about normalized EBITDA margin, excluding that fuel impact. And there's a couple of ways to look at. Again, the one that I talked about earlier was just look at our direct expenses, excluding the fuel and depreciation, just to make it simple. And then you'll see that everything is in line with what you would have expected with Q2. So implying that margin would be the same because really all that happened on the revenue line is that fuel surcharge lag, generally speaking.
And I guess, Chris, another frame of reference, maybe just to make sense of this because it is -- when you look at rail or trucking, they have a 1-month lag. And it's still a big issue for these types of companies, but with us with a 2-month lag, it just makes it so much more significant in our quarterly numbers, and that's what you saw in Q3. But it's no different than what you saw in Q4 last year and Q1 earlier this year. Same type of difference. The only difference was it was a bumpy decline over those 2 quarters, but -- so it was just spread over 2 quarters instead of 1 quarter going in the opposite direction.
So that's what you can expect over time. It's just one of the things we have to live with, but it does prove when you do that, that it is neutral to profitability. So hopefully, that helps. It is a complicated topic when you're looking at a 2-month lag over a 3-month quarter. But those 2 frames of reference, I think that -- when you do that, you'll see that, that EBITDA margin is stable.
Sorry, Chris, I was just going to add that I think in Q3, where we just reported our EBITDA margin is around 32%, 33%. And we -- internally, we -- just sort of as a double check to that, we can easily look at what would – what should the surcharge revenue had been in the quarter from our customers had the CANSIM index been up to date, and we charged appropriately in the quarter to reflect the increase in fuel costs. And our EBITDA margins are in the mid-30s, which is where we would expect them to be.
Okay. And then what are your thoughts on '24 in quality of revenue?
Like I said before, I think we're very probably conservative in terms of revenue growth both on the ACMI business and the domestic business, but we continue to operate and DHL continues to flex the routes that the aircraft are operating. We have some additional flying as we always do during the fourth quarter and then going into 2024, we're still operating the same number of aircraft until we take delivery of the 777s later in the year for them, barring any change in demand upwards.
The domestic business, as I noted earlier, we're probably forecasting mid-single-digit revenue growth -- mid- to high single digit revenue growth year-over-year. And the charter business, again, will continue the trend that we've seen for most of this year that we anticipate will have available aircraft subject to -- if we sold all 4 777s right away -- sorry, all 4 757s right away, that might restrict the number or lessen the number of aircraft we have available for charters. But based on what we see right now, we should continue that trend into at least the first couple of quarters of '24.
[Operator Instructions] The next question is from Walter Spracklin, RBC Capital Markets.
I just want to come back to the margin question to focus in a little bit on your historical margin and how that evolves going forward, particularly given, I think, in prior year -- prior quarter you did and were incurring quite a bit of overtime and training costs. Recent quarter, you've had the fuel surcharge lag effect. So if we do look at that volume growth assumption for -- in the mid-single-digit range, is it possible given your fixed aircraft structure -- route structure that we could have actually quite a material increase in your margins? And is approaching 40% EBITDA margin out of the question here for a normalized level going forward?
Well, Walter, if times are good, I would say, yes. But looking at the economic trends and you see in our customers and competitors, all the trends that you've been seeing, whether it’s ocean line on air lines, you're seeing the revenue drops by 30%, 40% on each margins down by them. So considering that, I think we have done very well. I don't think we'll hit 40% in today's environment. If things were to pick up and things were to improve, then obviously, we could look at some of those stuff, but not in today's economic environment.
Understood. Yes, that makes sense. And in terms of your CapEx, just to kind of formalize this and the changes you're making to your fleet, presumably your Investor Day forecast for 2026 would no longer apply? And do you envision updating those now with the new fleet strategy? What are your plans there?
Yes. We want to update that in the first quarter of 2024 because with the -- we have -- as I said, we have sold the feedstock of the 4 777s, but we still maintain the conversion slots because I think those would be very handy and they would be valuable, if the market improves. If not, they can be transferred, sold or something else can be negotiated for it.
So I think that we will -- we are working on a strategy for next year on the fleet, for sure. And as you know, our first 2 777s are committed with DHL, whether they come out in the middle of next year or end of next year. They are totally committed. And then '25, '26, we have 2 other 777s. So we will lay out a full strategy, hopefully, by the end of first quarter on our fleet and our forecast.
There are no further questions registered at this time.
Thank you, operator.
Thank you, everybody, for attending our quarter 3 call, and we look forward to speaking to you soon.
Have a great day.
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