Air Canada (AC) Q4 2021 Earnings Call Transcript

Air Canada (TSE: AC) Q4 2021 earnings call dated Feb. 18, 2022

Corporate Participants:

Valerie Durand — Head of Investor Relations and Corporate Sustainability

Michael Rousseau — President and Chief Executive Officer

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Amos Kazzaz — Executive Vice President and Chief Financial Officer

Craig Landry — Executive Vice President and Chief Operations Officer

Analysts:

Jamie Baker — J.P. Morgan Chase — Analyst

Stephen Trent — Citigroup — Analyst

Andrew Didora — Bank of America Merrill Lynch — Analyst

Kevin Chiang — CIBC World Markets — Analyst

Helane Becker — Cowen and Company — Analyst

Savanthi Syth — Raymond James & Associates, Inc. — Analyst

Walter Spracklin — RBC Capital Markets — Analyst

Cameron Doerksen — National Bank Financial — Analyst

Tim James — TD Securities Inc. — Analyst

Presentation:

Operator

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

Valerie Durand — Head of Investor Relations and Corporate Sustainability

Thank you, Motte. Hello, Bonjour. Welcome and thank you for joining us on our fourth 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 our revenue, our network performance, Aeroplan and Air Canada Cargo. Amos will provide additional details on our financial performance, fleets and liquidity, and then turn it back to Mike. We will then be available until 9:00 AM 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 may be forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures. Please refer to our fourth quarter press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and reconciliations of non-GAAP measures to GAAP results.

I will now turn it over to Mike.

Michael Rousseau — President and Chief Executive Officer

Merci Valerie. Good morning, everyone. Bonjour a tous. Thank you for joining us on our fourth quarter earnings call today. While COVID continues to impact our results, our above-expectation performance in the fourth quarter shows that a recovery is strong and well underway. Even with a dampening effect of Omicron on travel late in 2021, we produced significant year-over-year and sequential quarterly improvements during the period. In the quarter, our operating revenue of CAD2.731 billion exceeded our expectations and we reported EBITDA of CAD22 million, which while modest is quite significant as it is a first time EBITDA has been positive in seven quarters.

Our operating loss for the quarter was CAD503 million. With the additional benefit of strict cost discipline, we reduced our net loss by close to 60% from the prior year. We reported a net loss of CAD493 million or CAD1.38 per share again, better than our expectations for our company in the quarter. I must give credit for these results where it’s due and that is to our team. The progress we have made rebuilding our airline is only possible through our employees’ hard work, resourcefulness and commitment.

I warmly thank them for their dedication and professionalism, which has been unwavering through two years of a global pandemic. And despite the latest challenges of Omicron in December and beyond, their efforts running our airline hundreds of employees gave their time to contribute to communities in need. They did this in many ways including by supporting cleanup efforts after the devastating floods in BC, by donating to their local food bank or by giving holiday gifts to children who may otherwise not have received any. I’m proud of the culture we have built and admire our employees for their empathy and their kindness. There are many encouraging signs of underlying strength of the recovery during the quarter. Our advanced ticket sales increased almost CAD400 million in the fourth quarter and reached 65% of pre-pandemic levels in October and November prior to Omicron.

Revenue passenger miles increased 295% year-over-year as traffic returned. Our cash flow from operations remained positive, an increase from the third quarter. We ended the year with almost CAD10.4 billion in unrestricted liquidity, which is about 30% more than — at the start of 2021. Given the strong liquidity position we terminated the unused credit facilities under the Government of Canada Financial Package. This leaves only the special refund facility in place. Contributing to our results were strong performances from all lines of our businesses.

Air Canada Cargo reported record annual revenue of nearly CAD1.5 billion. Our transformed Aeroplan program generates strong billings in the quarter and launched a number of strategic partnerships with popular brands. And Air Canada Vacations saw a significant return of business in the quarter with some markets achieving bookings above pre-pandemic levels. There are other unmistakable signs of revival, most importantly we have recalled and hired more people with 3,900 full-time equivalent positions added in the quarter. We’ve been actively restoring our network and Lucie will speak more about this.

As we move into 2022, expectations are that COVID will recede. For this reason and with the government recently announcing the beginning of a phased easing of travel restrictions, we are confident the recovery of our business will continue throughout the balance of the year and beyond. But before I hand it over to Lucie, I will also like to express my gratitude to our customers. This includes those who have been flying with us now and the many more who intend to fly with us soon, as well as those trusting us to ship their cargo. All of us at Air Canada value your loyalty and thank you for choosing Air Canada.

Over to Lucie.

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Thank you, Mike and good morning everyone. To begin, I would also like to thank our caring employees. I personally participated in some of the community initiatives Mike outlined. You see the true heart of Air Canada when you see so many colleagues go above and beyond to elevate others despite the professional and personal challenges brought by the pandemic. This was especially true with Omicron, which impacted their personal lives and their much anticipated holiday. Thank you for your caring class. All our employees make me so proud.

In the quarter, in line with our expectations, we more than doubled our capacity when compared to same quarter in 2020. This represented a decrease of about 47% when compared to the same quarter in 2019. We achieved passenger revenues of just over CAD2 billion, an increase of about CAD1.6 billion or more than four times that of the fourth quarter of 2020. Traffic progressively returned following some easing of Canada’s travel restrictions and the reopening of the border in the third quarter of 2021. At the system level, traffic measured as revenue passenger miles increased nearly 300% versus the fourth quarter of 2020 with increases across all markets.

At the time we reported our third quarter results, we were observing meaningful momentum into Q1 2022 and beyond. Regrettably Omicron forced us to reduce our capacity and make several schedule adjustments for the first quarter. Despite the temporary setback we are now witnessing strong demand across all geographies, with the exception of Asia-Pacific. In fact, from a low point in early January we are now observing a steady increase in new bookings, as well as a far more stable way of cancellations. Therefore we project a stronger than anticipated spring and summer, and we are optimistic about demand trends going forward.

We’ve been actively restoring our network with 118 stations served at the end of 2021 and the average number of daily flights rising to 665 in December ’21 from 245 in January 2021. In the fourth quarter, we announced updates to our schedule, which included increasing service to key South American destinations like Sao Paulo and Bogota as well as resuming our service to Santiago and Buenos Aires. We began a seasonal service between Toronto and Santo Domingo, Dominican Republic in December. We also announced new seasonal routes connecting Quebec City and Vancouver and Calgary that are scheduled to begin later this spring.

I’m also pleased to call out the strong performance of our international network in December. Understanding that the recovery over the Pacific continues to lag and remains uncertain for some destinations, such as China, we turned our focus elsewhere in the Asia continent. We expanded our services to India was increased frequency to Delhi from Toronto and a new year-round non-stop route from Montreal, all of which are delivering strong outcomes with Montreal producing exceptional results. Given its strong cultural and business ties to Canada and a large population, India is a key market for us.

This enhanced service from Eastern Canada complements our daily service from Vancouver and our strength in India supports our strategy to capture VFR market demands. This shows our ability to quickly seize opportunities where we see good potential. We also returned to Australia after a 20-month hiatus. These routes, along with our South American routes did very well for us in the fourth quarter and reflects our determination to rebuild our international network. On the transborder market we are also very satisfied with our results.

There is good resiliency and appetite from sixth freedom travel. We will continue to leverage our competitive strengths, including Aeroplan and its relationships with Chase, American Express and Capital One to keep and grow our share of this market. Going forward, we believe there are continued opportunities for Canada to further expand in the U.S. market. We are considering various new routes to cement our market position as the carrier of choice between Canada and the U.S. in addition to further accelerating our sixth freedom travel strategy.

We are witnessing stronger than expected demand for travel between the United States and Europe, and we are poised to capture our fair share of this market segment in ’22. This of course will accelerate our recovery. The domestic market was also resilient in the quarter especially on the transcon sector. We recognize that there have been various domestic competitive announcements and anticipate the competitive landscape will be dynamic. Yet we continue to believe that our strategy of focusing connectivity through our hubs is the key differentiator and our main competitive advantage.

We are in the business of global traffic flows through our domestic market and hubs, and while we do not comment on competitors plan this in our view is an advantage. We plan to increase our first quarter 2022 ASM capacity by 243% from the same quarter in 2021. When compared to the same period in 2019, first quarter ASM capacity is expected to decrease by about 44%. Turning to the business travel, although the return of the corporate market has shifted to the right, industry specific and SME businesses have shown some sign of resiliency and we anticipate that to continue. As well, we believe that we will see a rebound in business travel in 2022 when the conditions continue to improve and as corporate Canada returns to office and people look to connect in-person with stakeholders.

We are consistently hearing from our corporate customers that there is an intent to travel again. Our service offering is well-positioned for traffic volume increases from all markets. Over the course of 2021 the commercial and operations teams worked diligently to safely restore our award winning products, including adapting and improving based on feedback and learnings during the pandemic. For example, we now offer [Indecipherable] delivery in many [Indecipherable] and we are testing digital self-entry in Toronto.

During the fourth quarter, we completed reopening the entire Maple Leaf Lounge and cafe network globally. Turing to Aeroplan, we are pleased with the strong customer engagement levels and above target growth we are seeing from the redesign program. Performance of our co-branded credit cards issued by TD, American Express, and CIBC have fully recovered over 2019 levels. Additionally, in 2021, we announced a partnership with Chase and launched the new Aeroplan World Elite Mastercard credit card in the United States.

Even prior to the pandemic a key element of our new loyalty strategy was to improve Aeroplan’s appeal for infrequent and leisure travelers. We’re pleased to report significant progress as we rolled out new partnerships with Starbucks, Uber and LCBO last year. And despite the difficult conditions in the first half, we acquired over 1.2 million members in 2021 significantly more than in the years prior to relaunching the transborder program. Aeroplan gross billing in December were also very encouraging as they surpassed those of 2019 and redemptions continue to recover at a pace.

We’re making progress towards the goal of earning our way into members everyday lives and further building Aeroplan as the key tool to support Air Canada in the leisure and VFR travel segment just as it does with business and corporate travelers. Turning to our Canada Cargo, our Cargo revenue reached CAD490 million in the fourth quarter of ’21, which represented an increase of CAD204 million when compared to the same quarter in 2020 or more than 160% over the same quarter in 2019. Air Canada Cargo operated over 10,000 cargo-only flights in 2021 compared to just over 4,000 in 2020.

In 2021, as Mike mentioned, we nearly reached CAD1.5 billion in cargo revenues for the first time in our history. Demonstrating our determination to further develop our Cargo division, we are nearing completion of an expansion of our Air Canada Cargo’s cold chain handling capabilities at Toronto Pearson for pharmaceuticals and other perishables. In December, we reached another milestone with our first Boeing 767 dedicated freighter beginning operations.

We expect to have three additional Boeing 767 freighters in our fleet by the end of 2022. The sustained performance of Air Canada Cargo validates our decision to return to fully dedicated cargo aircraft to take advantage of the growing cargo market both in dedicated belly space and freighter. Cargo business is an important part of our recovery and long-term growth helping with seasonality and diversification. It also serves the supply chain needs with time-sensitive cargo in a world that has seen domestic and international shipping challenges throughout 2021.

With that, I will pass it on to Amos.

Amos Kazzaz — Executive Vice President and Chief Financial Officer

Merci, Lucie, and Bonjour. Good morning, everyone. I’ll begin with a quick financial overview of the fourth quarter. On a GAAP basis, we recorded an operating loss of CAD503 million, about half of the operating loss of CAD1 billion in the fourth quarter of 2020. EBITDA excluding special items of CAD22 million improved CAD750 million compared to the fourth quarter of 2020. On a year-over-year capacity increase of 134% operating expenses of CAD3.234 billion increased CAD1.4 billion or 77% from the fourth quarter of 2020.

Despite the operating challenges brought by Omicron and a significant increase in fuel price, we managed to control costs through our disciplined approach and by the efficiencies and operating leverage achieved through our recovery plan. So for the sake of time as we only have an hour, including for your questions, I will only cite those categories that have the most notable variance in the quarter and that of course begins with fuel. Fuel expenses of CAD665 million increased CAD478 million from the fourth quarter of 2020.

The increase was a result of a percent increase in jet fuel prices net of CAD32 million favorable variance in foreign exchange. With the higher volume of flying we also consume more fuel compared to the same quarter in 2020. We remain vigilant on the price of fuel but we have not changed our view on hedging and are not doing so at this time. Wages, salaries and benefits of CAD666 million increased CAD159 million or 31% from the fourth quarter of 2020. The increase was driven by an increase of 41% in full-time employees related to the increased operation.

We are glad to see our colleagues return to work. In the fourth quarter of 2021 regional airlines expense, excluding fuel and aircraft ownership of CAD342 million increased CAD97 million or 40%. The increase was primarily driven by higher expenses due to the higher volume of flying compared to the same period in 2020, but was partially offset by savings from the consolidation of regional flying. Depreciation and amortization expense of CAD399 million in the quarter, CAD36 million or 8% lower than the fourth quarter of 2020 reflected the accelerated retirement of certain older aircraft from our fleet, partially offset by the addition of new Airbus A220-300s and Boeing 737 MAX 8s.

In the fourth quarter of 2021 aircraft maintenance expense was CAD226 million, up 22% from the same period in 2020. The increase was primarily due to the higher volume of flying compared to the same period in 2020 and to a lesser degree updated end of lease cost estimates related to an aircraft returned to lessor in 2021. Turning to the full year, operating expenses of roughly CAD9.4 billion, decreased CAD160 million or 2% when compared to 2020. Still a direct year-over-year comparison of total operating expenses is not necessarily meaningful as we operated a pre-pandemic schedule for most of the first two months of 2020.

Special items recorded in 2021 amounted to a net operating expense reduction of CAD31 million compared to a net operating expense reduction of CAD116 million recorded in 2020. As for our fleet, as we reflect on this past year’s extreme turbulence, yes, the pandemic had a devastating impact on our industry, but it also accelerated innovation, including sustainability initiatives that contributed to our climate plan ambitions. For example, as the response to the surge in demand for air cargo space, we innovated by operating all cargo flights using passenger aircraft, as well as some Boeing 777-300ERs and Airbus A330s temporarily converted into all cargo configuration.

We plan to have all temporarily converted 777s and A330s back in a passenger configuration by the end of 2022. We accelerated our fleet renewal by moving up the delivery of four MAXs from 2022 to the fourth quarter of 2021 for a total of seven aircrafts delivered last year. The remaining nine MAX 8 aircraft are expected to be delivered by the end by of the second quarter of 2022 reaching a total of 40 MAX 8s in the fleet. We also took delivery of three A220s in Q4. At the end of 2021, we had 27 A220-300s. In 2022, we expect to have six more enter the fleet.

Additionally, we plan to add 12 more A220s to the fleet, six will be delivered in 2024 and six in 2025. These are the 12 aircraft that we have previously determined we would not be purchasing. This will bring our A220 fleet count to 45 by the end of 2025. If you have not yet experienced traveling on this aircraft, we look forward to welcoming you on board soon. You will be impressed. Finally, we exercised options for the purchase of three 787-9 aircraft scheduled to be delivered this year and in 2023. Turning to liquidity, we began the quarter with about CAD14.4 billion of unrestricted liquidity, which included CAD4 billion available under government credit facilities and CAD900 million in revolvers.

In November 2021 as Mike mentioned, we withdrew from the Government of Canada Financial Support. Remember that none of the near CAD4 billion available under the secured revolving and unsecured non-revolving credit facilities was ever drawn. We elected to terminate these as we were entitled to. Now, only the special facilities dedicated to support refunds of non-refundable tickets remains in place. It has a seven-year term and carries an interest rate of about 1.2%. Total draws from this refunds facility amounted to close to CAD1.3 billion and draws ended in November of 2021.

Last spring, we issued about 14.5 million warrants to the government exercisable for the purchase of an equal number of Air Canada shares. Half of these warrants vested upon the implementation of the Government of Canada Financial Package. The other half is now canceled as it was conditional on draws we could have done under the unsecured credit facilities that we terminated. Air Canada had the right to repurchase and cancel divested warrants, which we did in January at a fair market value price of about CAD82 million.

At the end of the fourth quarter our unrestricted liquidity amounted to CAD10.4 billion, practically unchanged from the beginning of the quarter, excluding the now canceled government facilities. Additional information about our liquidity and financing transactions can be found in our financial statements and MD&A, which are now posted in our website and filed on SEDAR. I know all of you are looking for more guidance. But you’ll need to be patient and wait a few more weeks until our Investor Day at the end of March.

We also plan to showcase more about our key assets and competitive attributes. Finally, I will close by echoing Mike and Lucie in thanking our employees. While I have discussed the financial elements of our results, the culture we have built, propelled by their empathy, dedication and desire to elevate our customers and each other is central to the intrinsic value of our company.

I will now turn the call back over to Mike.

Michael Rousseau — President and Chief Executive Officer

Great and thank you, Amos. We said during our previous quarterly earnings call in early November that the recovery of our company was underway. Today’s fourth quarter results show this recovery is robust, sustainable and continues gaining strength. Tuesday’s announcement by the Federal Government notably the changes in travel advisories and the removal of quarantine for children under 12 years old is also an important step forward for travelers, our industry and for the Canadian economy, which relies on trade and tourism. But more needs to be done. Other countries have moved to eliminate pre-departure testing requirements for fully vaccinated travelers. And the scientific evidence suggest now is the time for Canada to do the same.

As provinces across Canada are announcing comprehensive reopening plans we are confident that border measures will continue to ease in the near future. If bars and large public events can reopen at full capacity and at some provinces such as Quebec and Ontario can put an end to the vaccination passport there is no reason to single out travel. Canada’s economic recovery won’t happen without the full contribution of the aviation industry. For our part, we can contribute as a Canadian Global Champion.

It is a status we achieved prior to COVID by focusing on revenue enhancement and cost transformation, leveraging our international network, customer engagement and cultural change. Our company is fundamentally solid. Now, the world is showing us that we are ready for takeoff and it is time for us to embark on our next chapter. As we emerge from the pandemic, we will stay true to what has defined Air Canada while at the same time pushing ourselves to do things differently. This will include making strategic investments and being creative to seize new opportunities.

We will aim to rise higher to elevate everything about our business. I will detail this further at our upcoming Investor Day on March 30. But for now, let me touch on some of the key assets and competitive attributes that we will leverage. Chief among these is our power to make meaningful connections, something our country and world longs for, following the isolation of the pandemic years. Our vast and growing network is unrivaled in Canada and compares favorably to any in the world for connectivity and convenience.

Combined with our networks of our JV in Star Alliance partners, we can offer customers easy access to virtually any destination on the earth. We also had the ideal fleet to operate this network. The pandemic accelerated our fleet renewal plans, allowing us to exit certain aging and less efficient aircraft. At the same time, we sped up the delivery of new narrow-body models and built out our international fleet. Third, we have a strong brand, product and people recognized by numerous awards in 2021, notably Skytrax Awards for Best Airline Staff in both Canada and North America. Customer service, products and experience will remain a central focus.

Another significant attribute is Aeroplan. It is Canada’s leading travel loyalty program and offers powerful inducements for travelers that choose our airline. The transform programs added emphasis on the Visiting Friends and Relatives market is key as this market is leading the recovery in our industry. And finally, there is Air Canada’s strength and commitment to sound environmental, social and governance practices. ESG is increasingly important to our investors, customers, employees and other stakeholders. During the past year, we set an ambitious target of net zero emissions by 2050.

As well we have committed to support the development of alternative fuels and other technologies to reduce emissions. In the quarter, we were the first Canadian carrier to join the Aviation Climate Taskforce, a new not-for-profit organization of 10 global airlines in the Boston Consulting Group. It aims to accelerate research and innovation in decarbonization technologies. Sustainability is something I take a deep personal interest in as I believe we all do.

The governance of our company starting with our deeply committed Board of Directors is aligned to ensure ESG continues to be integral to Air Canada’s decision-making in the future. In all of these and other ways, our company is very well prepared to thrive in the post-pandemic world. The strategies and competitive attributes we have put in place, puts us at the forefront of the recovery of our industry, which I believe will result in the strong recovery of our equity value. Thank you. And now, we have time for questions.

Valerie Durand — Head of Investor Relations and Corporate Sustainability

Thank you, Mike and thank you for joining us today. In closing, we are glad to confirm once again our Investor Day is planned to be held in-person on March 30 in Toronto. We’re now ready for questions. Once again in the interest of time and in order to be fair to all 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 our Investor Relations team. Over to you Motte.

Questions and Answers:

Operator

Thank you, Ms. Durand. [Operator Instructions] Our first question is from Jamie Baker from J.P. Morgan. Please go ahead.

Jamie Baker — J.P. Morgan Chase — Analyst

Yes, good morning everybody. So we’ve spoken in the past about capacity rationalization in some of the longer haul international markets and the possibility that it could lead to higher international margins down the road than what you enjoyed pre-COVID. As we monitor capacity being added back into some of these longer-haul markets, have they compared to what you were originally thinking about this topic earlier in the pandemic? I mean, is it ahead or behind what your expectations were in line — just overall commentary.

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Hi, it’s Lucie. First, on the international front, as you know, over the course of the last two years we had a significant reduction in our Asian network and we focused on the Trans-Atlantics but we also focused on markets where we knew during this environment where there is significant demand in Canada, particularly in some of these [Indecipherable] markets where we knew we could be able to be successful. So over the course the last two years we focused on some of those markets, think some of the markets in the Middle East.

We talked about India. And those markets exceeded our expectations. And it leaves us very confident for the future as it pertains to those routes. Now, as you look into 2022 and we’re actually now starting our revamp of our international network keeping in mind that when we started to reintroduce some of the Transatlantic flying, it was based on the fact that we ensured that we had connectivity into our Star Alliance and to our joint venture partner hubs. So we leveraged that and now we are adding markets where we can clearly see that A) from a point of sale Canada demand it’s solid and where we also have opportunity for inbound.

So we’ve done this progressively. But I can tell you that based on advanced bookings what we’re seeing on our international network we have every reason to believe that it’s going to be very successful for us in this summer. So advanced bookings are boarding well. The advanced yields in terms of selling price on those markets as well is very, very encouraging, but we were very prudent. But again, we were able to add on progressively. And I think by the time we reach this summer we have a very, very solid international network. Now on the Asia front, as we know, we expect, we’ve said we expect that this will take longer, but nevertheless we found out there are opportunities during that time.

Jamie Baker — J.P. Morgan Chase — Analyst

Perfect, thank you for that. And a quick follow-up, at least here in the States what we’re seeing is that corporate travelers tend to be booking further in advance, whereas leisure — the booking curve is sort of uncharacteristically steep at the moment. I’m just wondering how do you think this actually plays out with yields? I mean it seems like there is yield upside as more corporate travelers begin booking closer in but possibly leisure downside as consumers increasingly have the confidence to book further out. I mean, first, is that what you’re also seeing? And then, any thoughts on this dynamic? It seems like the two booking curves have sort of swapped places with how you’d expect them to be shaped pre-COVID. Thanks.

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

There is no doubt that in 2021 and even now when we look at the booking curve there is no doubt that even for leisure traffic the demand is much, much closer — comes in much, much closer than what we would have observed in 2019. But having said that, now that we’re heading into the second quarter, we are now starting to see and I think a lot of it has to do of course with lifting of the restrictions, customers now have confidence that they can book their summer and that their travel plans are not going to be impacted.

So we’re starting to see a little bit of a shift now. You know the basic principle for us is always — we manage the higher yield, the highest yielding segment first. So as we look for business to return we’ve been monitoring these trends for quite some time and we in fact monitor them daily. As soon as we start to see that in fact, the business demand is looking to return we will be in a position to make sure that we can manage both of those segments. But it’s, I think — the last week or so, it’s really been the first indication where we’re actually starting to see confidence in terms of booking a little bit further out for leisure.

Jamie Baker — J.P. Morgan Chase — Analyst

Interesting. Okay, thanks for all the color on the color. And see you in a few weeks.

Operator

Thank you. The following question is from Stephen Trent from Citi. Please go ahead.

Stephen Trent — Citigroup — Analyst

Hi, good morning and thank you very much for taking my questions. Just a quick one or two from me; when I think about sort of your post pandemic recovery, I was intrigued. You mentioned your Star Alliance Partners and given this might be a question for Lucie, given what you guys are seeing in terms of maybe a slower recovery and manage business travel. I mean, not just you, everybody, do you think that some of that medium to longer term growth could come more from the JVs than from the Star Alliance?

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Well, there is no doubt that from a JV perspective if you consider A++ or the partnership that we have with the Lufthansa family and with United, we’ve been working alongside these two carriers for several, several years and of course through the pandemic. We’ve been able to better align. There is no doubt that as we recover some of these markets there is an opportunity for us to capture some interline traffic that comes from other Star Partners or even other interline partners. So any time we are planning a team, access any international route we always look at the makeup and where we can actually draw that traffic.

But there is no doubt that as we move forward we’re very much aligned with our JV partners. And it also provides us the ability to really understand what’s happening in other jurisdictions. We were talking about corporate a little bit earlier. We can actually see what’s happening in the U.S. as far as business traffic recovery. We can see what’s happening in Europe in terms of demand levels for travel into North America. So it’s very helpful for us to forecast what we see in the future, but there is no doubt that we work very, very closely with our Star Partners and of course with our JV partners.

Stephen Trent — Citigroup — Analyst

Oh, super, appreciate that, Lucie. And just my one very quick second question, some of your U.S. peers have been kind of from a configuration perspective shifting some capacity from economy to kind of premium economy. If you could refresh my memory — to what degree Air Canada’s also deploying that kind of strategy? Thank you.

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Well, we have, so for — in terms of product offering, we of course have premium and we also have a PY product across our network. And I would just say one other thing here, for us and even before the pandemic we spent a fair amount of time looking at a multitude of opportunities for us to capture different premium segments, particularly in the leisure and the VFR markets. So as we headed into the pandemic, we were able to actually offset some of the yield pressure that we felt because there was no corporate travel with PY ancillary sales for seat purchases, leisure upsell to J class for example. So this is not something that is just came out of the pandemic, this is something that we’ve been working on for some time and of course all our aircrafts are equipped as well with PY products.

Operator

Thank you. The following question is from Andrew Didora from Bank of America. Please go ahead.

Valerie Durand — Head of Investor Relations and Corporate Sustainability

Andrew?

Operator

Please go ahead.

Andrew Didora — Bank of America Merrill Lynch — Analyst

Hi, good morning everyone. Can you hear me?

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Yes.

Andrew Didora — Bank of America Merrill Lynch — Analyst

Okay. First question for Amos, can you remind us of the permanent cost savings that you’ve taken out of the business since 2019? And yeah, with your new fleet profile do you think those cost saves provide the efficiency to get your CASM ex back towards pre-pandemic levels here?

Amos Kazzaz — Executive Vice President and Chief Financial Officer

Good morning, Andrew. You’re trying to get ahead of the story for the end of March. Nice try, we’ll have more to say about that at the end of the — end of March share here at Investor Day. The savings that we had driven out of the company during the course of the pandemic and the recovery were — when you — it was about CAD800 million was split up was about CAD800 million in terms of the operating expenses that came on down.

And then later on, as we layered on top of that we also had the savings from — it was moved into consolidating the regional carrier with Sky Regional and Jazz and consolidate flying and that generated another CAD400 million over a period of 15 years. But it was front weighted of about CAD50 million for the first four years, five years, then CAD15 million thereafter. Those are sort of the large headline stories from back in the early recovery days, but that doesn’t mean that we’ve stopped on any cost reductions. We continue to look for opportunities and continue started to leverage up what we have progressed through the time.

Michael Rousseau — President and Chief Executive Officer

And just to add — good morning, Andrew. It’s Mike. Just to add to that, I mean we went into the pandemic with a couple of key objectives and we’ve always done a great job in cost management as you know, and frankly, our CASM ex going into the pandemic was very comparable to U.S. Airline’s CASM ex on a currency neutral basis, despite the fact that we were much smaller or roughly half the size. But we went in with an objective to try and lower our fixed cost structure of the company and lower the breakeven point from a — whatever perspective you want. And we’ve accomplished that and we’ll provide more information about that at Investor Day.

Amos Kazzaz — Executive Vice President and Chief Financial Officer

Yeah. And just one more piece on that just as you look at the all the fleet changes, which really sort of went through in changing also some of the cost structure is — you now look at — we’ve accelerated the fleet deployment of the A220s and MAXs which on average were 12% to 15% lower unit cost in the aircraft they replace. So again, all going towards generating and driving down lower breakeven point.

Andrew Didora — Bank of America Merrill Lynch — Analyst

That’s great. I’ll stay tuned for more detail for the end of March. Just one last — my second question maybe from Lucie; look, there has been — international has been a topic of conversation so far. I was interested to hear that you’re sixth freedom traffic that you started commenting about your sixth freedom traffic certainly, it seems like it’s returning sooner than I would have thought. In terms of your share here into the peak summer, are you seeing similar share to where you were pre-pandemic already? I think your goals pre-pandemic were 3%, 3.5% of the total traffic. Just curious what you’re seeing there in terms of sixth freedom traffic? Thanks.

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Maybe I’ll — as opposed to looking at it from a share perspective, keeping in mind that our international network is — it’s a different makeup than what we had in 2019. But if we look at pure volumes for the summer and how our advanced bookings are building on the sixth freedom side of the business, I would tell you then in many markets we’re actually ahead of where we were. And needless to say, we have been very, very focused on our transborder network as well to make sure that we have very good connectivity that we have a really good product for sixth freedom markets for connections to and from the United States.

And based on what we’re seeing we’re quite optimistic that it’s going to perform quite well for us in the summer. And in fact we have given ourselves some internal stretch goals here because there is no doubt that with the product we have and the schedule that we have, how we design the scheduled for this summer there is an opportunity for us here. So we’re very, very much focused on this.

Andrew Didora — Bank of America Merrill Lynch — Analyst

Thank you, everyone.

Operator

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

Kevin Chiang — CIBC World Markets — Analyst

I’ll just keep it to one. I was just trying to get a sense of how you think about using some of your excess unrestricted liquidity now that it feels like you’re more comfortable with the recovery in front of you. You’re sitting on something like CAD7 billion of excess unrestricted liquidity. Is that like a gross debt payback you’re looking for the near term or was there a trigger that you’re looking at in terms of the recovery before you start de-levering more aggressively here?

Amos Kazzaz — Executive Vice President and Chief Financial Officer

Hey, good morning, Kevin. It’s Amos. So, you’re right, we’re sitting on obviously some solid liquidity here, which we feel is important to have as we go through the recovery period. What we’re doing right now in terms of beginning stages of putting the liquidity use — cash to use, delevering is purchasing aircraft with cash. So the MAXs that I’ve spoken about are all being paid for with cash. So that’s sort of our first use of — I mean, I guess you can almost say then the second part of that, a small part was the repurchasing of the warrants that were outstanding. So besides that we have — continue to look at opportunities. There is nothing really close in that would say is a stand out opportunity. But we’ll continue to evaluate as time goes by and how the recovery progresses and our views on cash going forward.

Michael Rousseau — President and Chief Executive Officer

Yeah, I mean Kevin, it’s Mike. I think we’ve got tremendous flexibility. As you know, we’ve always been conservative. So we typically like to hold probably a little more than average cash in the balance sheet. But if you look at our debt schedule and what Amos and his team has done pushing out the debt schedule with the all-in interest rate that’s up 4% — we’re very, very comfortable to take our time to find the best possible opportunities to deploy our cash.

Kevin Chiang — CIBC World Markets — Analyst

I’ll leave it there. Thank you very much. Have a great weekend everybody.

Operator

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

Helane Becker — Cowen and Company — Analyst

Thanks very much, operator. Hi everybody and thank you for the time. On the 787s are you confident that you’re going to get those aircraft this year? And once Boeing is able to deliver this Transport Canada have to do anything to certify the aircraft in Canada?

Amos Kazzaz — Executive Vice President and Chief Financial Officer

Hi, good morning, Helane, it’s Amos.

Helane Becker — Cowen and Company — Analyst

Hi Amos.

Amos Kazzaz — Executive Vice President and Chief Financial Officer

We’re fairly confident in the Boeing schedule. They’ve haven’t started delivery again yet, and I think you saw the news recently that FAA need to sign off on deliveries just as they have, they are doing now with the MAXs. But we’re fairly confident that we’ll get our — we have one scheduled for delivery this year and then two in 2023. There is a lot of parked aircraft there. So it’s not a question of going down the production line. It’s more of just getting approvals and to start deliveries. So we feel fairly confident about that. And then on TC, there isn’t any additional TC [Indecipherable] that I’m aware that they have now so they want to take a second look at this. So right now, nothing to my knowledge that TC will have another review of the 787.

Helane Becker — Cowen and Company — Analyst

Okay, that’s helpful. Thank you. And then for my follow-up question, it’s just a point of clarification on testing to go into Canada. For your sixth freedom flying do you people have to test to make those connecting flights? And I mean, do you have to like test like a lot to enter Canada and then to leave Canada? I mean, I’m asking because it might impact the number of people who would want to travel through one of your cities on one of your sixth freedom flying.

Craig Landry — Executive Vice President and Chief Operations Officer

Hi Helane. It’s Craig Landry here. The testing requirement, there is no additional testing requirement for connection through Canada. It will be determined by their country of origin and country of destination.

Helane Becker — Cowen and Company — Analyst

Okay. Okay, that’s very helpful. Thanks everybody.

Operator

Thank you. The following question is from Savanthi Syth from Raymond James. Please go ahead.

Savanthi Syth — Raymond James & Associates, Inc. — Analyst

Hey, good morning everyone. Lucie, just if I might ask a follow-up on the strong spring-summer commentary. I was kind of curious how you’re thinking about capacity restoration kind of by geographic entity as you head into the summer, kind of what level versus 2019 we can see?

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

I don’t think I’ll provide specific numbers, but what I can say and I’ll start with the Pacific for the simple reason that, as I mentioned a little bit earlier, this is the one area, which is — we view will take the longest to restore. So you can assume that the capacity levels on the Asia-Pacific markets will not show a meaningful recovery. But within the North American network for domestic and transborder we will be slightly behind 2019 so that we will progressively ramp up.

And on the Transatlantic network we anticipate a caution here given the fact that we are also operating incremental India or much longer-haul flying we should — we’ll probably be in the minus 30 or so range. But definitely our ramp up commences obviously in April, and by the time we hit May and June is when you’re going to see most of our international flights, particularly on the Transatlantic network start service. And we’ll have our full ramp up for summer peak.

Savanthi Syth — Raymond James & Associates, Inc. — Analyst

That’s very helpful. Thank you. And Amos might ask you just what’s the diluted share count following all the warrant buybacks.

Amos Kazzaz — Executive Vice President and Chief Financial Officer

I think – hang on well, let me get back to you with that. I don’t have that off the top of my head here.

Savanthi Syth — Raymond James & Associates, Inc. — Analyst

All right. All right, thanks everyone.

Operator

Thank you. The following question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Walter Spracklin — RBC Capital Markets — Analyst

Thanks very much operator and good morning everyone. I guess when we were chatting with your partners at Chorus Aviation about the cadence of Omicron and how we had signs of — very positive signs as we ended the year or, I’m sorry, as we start the quarter, fourth quarter Omicron having come in at the end of the quarter and then guiding down for the first. Our question on the call was what indication, even though we have that is that Omicron is temporary and that we’re going to actually see a very significant resurgence.

And answer was very interesting and that they said, kind of, you were looking for 87% block hours that were 87% of the second quarter in 2019 for the second quarter of 2022. Understanding regional is a different beast than your overall network, but 87% seems like a pretty interesting number. Is there anything you — are you seeing that? Obviously, you’re seeing that in the regional, how would that 87% in regional compared to the rest of your network, perhaps international or cross border?

Michael Rousseau — President and Chief Executive Officer

Good morning, Walter, it’s Mike. It certainly is some indication, but it’s not the strongest proxy for our capacity growth from Q1 to Q2. There is no delve as Lucie was saying in her prepared remarks. We are seeing strong growth once before Omicron hit, then it was almost a very quiet period for better part of a month, month and a half with a lot of cancellations. But over the last month or so we have started seeing strong growth, strong momentum in bookings, absent obviously Asia. And certainly we’ve been speaking to Chorus and Jazz about their support. But again, I would not take their comments as a clear proxy to our Q2 capacity guidance.

Walter Spracklin — RBC Capital Markets — Analyst

Okay. When you look at your workforce and I know you’re looking at reductions compared to 2019. But when you look at your headcount for example, what should we model, when we get back to let’s say the same capacity as you had in 2019? Would we model roughly the same employee headcount, or is there some savings that you’ve and synergies that you were able to achieve that we won’t have the same headcount in that recovery year — full recovery year as we head in 2019?

Michael Rousseau — President and Chief Executive Officer

Hey, Walter, it’s Mike again. Another good question around capacity. So we have looked at efficiencies and so we are staffing up right now as we spoke about for a stronger summer. When we get back to 2019 levels we’re hoping, our objective is to be slightly under from a headcount perspective showing some of the efficiencies we’ve gained over the last little while. So I don’t think we’ll — on ASM to ASM, I don’t think we’ll be at the same headcount number. We’ll be slightly lower, but certainly we look to continue to grow beyond 2019 levels and that we will continue to add staff at that level.

Walter Spracklin — RBC Capital Markets — Analyst

That makes sense. Appreciate the time. Thank you very much.

Operator

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

Cameron Doerksen — National Bank Financial — Analyst

Yeah, thanks, good morning. Just kind of a question on corporate travel, I guess, I wonder if you can maybe comment on how much of that would be covered for you prior to the onset of Omicron, so I’m thinking kind of in October, November timeframe? And I guess associated with that what are you seeing I guess in recent weeks? I mean, we’ve obviously got some more announcements around provinces allowing return to work. So I’m just wondering if you’ve seen any meaningful pickup in the corporate travel market or corporate travel bookings just in recent weeks?

Lucie Guillemette — Executive Vice President and Chief Commercial Officer

Hi, it’s Lucie. Well, listen, you’re absolutely correct. When we were starting to see a little bit of improvement in the corporate sector, particularly for travel within North America and of course when Omicron hit and travel restrictions became somewhat [Indecipherable] that pretty much stalled. But couple of things I want to comment on, there are some sectors in Canada that have shown resiliency throughout the entire pandemic. If you think — construction, engineering, there are some sectors of our corporate traffic that has continued to travel, of course, in that fraction of what we would have experienced in ’19.

But I have to say, over the course of the last two weeks or so maybe three weeks we do see very slow but we do see progress week-over-week. So there is no doubt as travel restrictions ease some of the testing requirements become easier. Mike spoke about that but obviously, this was a first step, more that needs to be done there. But as we also see corporations going back into the office we’re still in some provinces under mandatory work from home — people go back into the office.

We can see that the sentiment is there. Of course, we’ve been in touch throughout the pandemic with our corporate accountants and with agencies that specialize in the corporate business. So we hear the feedback. We’re just also of course very anxious to start to see the trend to take a bit of a sharper turn here, but there is no doubt that we are seeing some changes, particularly in North America. It’s just, it’s much, much slower than what we’re observing in other sectors.

Cameron Doerksen — National Bank Financial — Analyst

Okay. And if I could just squeeze in a quick clarification for Amos. I don’t know. I apologize if you mentioned this, but what was the cash that you spend on retiring those warrants in January.

Amos Kazzaz — Executive Vice President and Chief Financial Officer

About CAD82 million, Cameron.

Cameron Doerksen — National Bank Financial — Analyst

Okay, perfect. Thanks very much.

Operator

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

Tim James — TD Securities Inc. — Analyst

Thanks, good morning everyone. I just want to return to an earlier question, Mike, about sort of the cash and your very strong cash position and forgive me if you mentioned this, but I’m just wondering if you can provide some thoughts on what is the ideal longer term cash balance for the business now, if it has changed relative to pre-pandemic for any particular reason, whether it’s in an absolute dollar value or whether it’s relative to revenue, which is a metric I know that you used to reflect on? Just any thoughts you have on kind of when we get back to normalized conditions, how to think about the ideal cash balance for the company?

Michael Rousseau — President and Chief Executive Officer

Tim, it’s Mike. Amos make some comments as well because this is a discussion we’re having internally. And I think every airlines having internally given the lessons learned through the pandemic and certainly the fact that we were conservative going into the pandemic served us well to power through the pandemic. So I wish I had better answer for you, Tim. We’re still kind of discussing that internally as to — I don’t think it’s going be a percentage of revenue.

I think it might look more at cost structure at potential losses because we’ve experienced something that was unheard of over the last two years. And so we’ve learned a lot more about what type of insurance we need to maintain our balance sheet either through operating lines or hard cash. But certainly what we have today is much too high from our perspective. But we will have — we will do some further analysis and see where other airlines are going to some degree as well. But I think still more to come on that very, very important question.

Tim James — TD Securities Inc. — Analyst

Okay. That’s the only question I have. Thank you very much.

Valerie Durand — Head of Investor Relations and Corporate Sustainability

Thank you. Thanks. I believe that’s all the time we have for the call today. For those of you who may have not had the opportunity to ask your question, we invite you to contact us at Investor Relations and we’ll be happy to take your questions there.

Operator

[Operator Closing Remarks]