Air Canada (AC) Earnings Call Transcript & Summary

Okay. Let's get going. Thanks, everyone. My name is Mark Streeter. I'm the one asking all the questions upfront here, but from the debt side of JPMorgan. And Jamie and I, this is the one session today where we're double booked. So we discussed who should host the fireside chat with Amos Kazzaz, the EVP and CFO of Air Canada. And I said to Jamie, well, number one, I've covered Air Canada longer. And number two, I actually have a little Canadian blood in me, on my grandmother's side. So I said, I mean, it's my birth right. So I get to do you, and Jamie is vanished to some country right now, so -- in the other room. So Amos, welcome and thanks. I know you have some slides you want to review at the start here, just an update on earnings and so forth. And then we'll jump into some questions, and happy to take audience questions as well. So let me turn it over to you.

All right. Thanks very much. Good afternoon, everyone. And I'm honored that you're actually here with me today and not Jamie. So this is good. So this is a few slides just to set the backdrop stage for Air Canada and just sort of start, the first one is obviously the obligatory caution on forward-looking information. But then from there, just a quick touch on Q4 and full year 2022 highlights. The slide is really a good reminder of Canada's delayed opening of its borders, and you see that we operate at 73% of 2019 capacity that last -- and if you remember, last year at this time, there was this thing called Omicron, remember that variant, and basically it shutdown all flying from Canada to sun destinations and some other destinations. So essentially, that began in January '22. But as you see there, by Q4, we are back up to 85% of 2019 capacity. Total revenue was up 6% compared to Q4 of 2019. And we generated just under $800 million in free cash flow. So turning to our guidance for 2023. You see there will be capacity about 90% of 2019. That's up 22% from last year. Adjusted CASM will be up 13% to 15% compared to 2019, and adjusted EBITDA of about $2.5 billion to $3 billion. We also took the time to update our 2024 targets. And beginning with capacity, we now should be back to 100% of 2019 by end of 2024. And that's because of the interim lift that we brought on into the fleet as we saw the recovery moving at a faster pace. Adjusted CASM is up in part because of higher passenger traffic that drives higher distribution costs, and of course, higher staffing levels as we're building back up and inflation that we've been contending with since last year. Adjusted EBITDA is basically $3.5 billion to $4 billion, which is in line with our profit margin -- our prior margin guidance. Leverage ratio is up by half a turn, basically because of higher cash used for CapEx and the freighter investments that were communicated at Investor Day last year. Again, we just firmly believe that our -- these are long-term benefits to be gained from these investments in the freighter business. And keep in mind that our investments in the freighters will contribute really post 2024 from a full sort of EBITDA perspective. By that time, we expect to have 9 767 freighters operating and 2 777 freighters in operation. Again, that also gives us the opportunity to diversify revenue and essentially capture opportunities in the cargo space. Again, then on cumulative cash flow, it will be about $2.5 billion for 2022 through 2024 due to higher CapEx, again, partially offset by higher cash from operations. Then now looking into 2023, the demand environment, which I know everybody is interested in, continues to really be very strong with traffic recovery ahead of our capacity recovery, resulting in load factors ahead of 2019 and, again, favorable yields. Adjusted advanced bookings are basically solid from a volume and a fare pay perspective. And we expect the Atlantic to perform very well, really continuing what we've seen here this past year. Strong demand for our premium services and continued higher average fares. And our vacation business is also seeing average prices -- package prices up and holding up very well. And then lastly, can't do a presentation without touching on ESG, and especially, the E part of ESG. So our climate plan does provide with the framework to achieve our ambitious goal of net zero emissions by 2050, and 2030 absolute and midterm net reduction targets from air and ground operations. So that's it just for background. And now -- so over to you, Mark.

Okay. Merci. Let's talk a little bit about unit cost because this is -- I hate to admit it, sometimes people call us an equity conference, but we have stock investors and your credit investors in the room. So -- and I know that was the big focus. So you mentioned prior guidance on CASM, plus 2% to plus 4%; new guidance plus 8% to plus 10%. Can we just drill down a little bit more on the drivers there? You mentioned a few of them, but I don't know if you can sort of break it down and maybe prioritize what the drivers are in terms of unit cost because, clearly, Air Canada has always been a higher cost -- higher revenue, higher cost network airline. But why this pretty significant jump in unit cost? And let's just spend a few more minutes talking about that.

That's a good question, and it's one that we've been tackling here. So I almost have to take you back to basically when we rolled out that guidance, that was at our March Investor Day of 2022. And again, not making excuses, but that plan was put together in January of 2022. So if you go back to that environment in January of 2022 and early part of February, that was pre the Russian invasion of Ukraine. Fuel prices had not yet taken off, inflation was running in its normal environment, and we saw sort of a pace of traffic recovery that really sort of elongated and didn't expect a 2022 rapid recovery and into 2023. And then, so you put all that together in terms of what our economic assumptions were, what our outlook was on traffic, what the outlook was on inflation, and then all of a sudden, now we're going through the year, we have the Russian invasion, we have New York Harbor price fuel dislocation, we're seeing now rapid recovery on traffic, but then we also see a fare environment where we've been able to pass along fare increases. But then we saw then this inflation begin hitting some of the sort of key commodities, catering expenses, ground handling expenses as the labor market had changed and bringing in new vendors. We saw that on the IT cost. So essentially, we saw this rapid escalation and inflation that we just did not see and that sort of hit all of us, but we, of course, made our predictions based on a different set. So now when we [indiscernible], go through the year and you say, okay, well, great, the recovery is better, so we're seeing stronger revenue. But then all of that additional traffic attracts more sales and distribution costs, right? Your -- our credit card swipe fees are agnostic to the number of passengers, but sort of driven off of revenue. So we begin -- you put all those items together, the inflationary impacts, the traffic. And then the other item that we had also dealt with was resiliency of the operation. We all saw -- I don't want to call it the meltdown, but certainly, the difficult operating environments we had in last summer. And so we added additional employees, additional hiring, additional training to be able to build a more resilient operation to adjust and get through all of that. So you throw in labor, you throw in the inflation, you throw in the sales distribution cost, and essentially, that's what took us off of that CASM guidance of 2% to 4% and got us then up to this new range. Now that said -- and you're right, this is something that we've heard also from our other investors and shareholders, that Air Canada never sort of misses on costs. If it's one thing that's been ingrained in our DNA now at Air Canada is focused cost transformation and always continuing to do what we can on that. So believe me, the whole organization is now driving to just see what we can do to offset that. But from a perspective right now, that's what we've laid out, but we've not lost our focus. I don't want the audience here or those that are listening to take -- to step back and think that we've lost our focus on costs and we accept that. We don't. We continue to fight inflation where we can. We continue to look for other opportunities in terms of improving productivity on the labor front and really with all assets.

So when you think about these cost increases, how much of them are transitory or related to the ramp-up of the network back to the 100% level where you were relative to 2019? How much of them are -- one-timers isn't the right word. But when we think about '25, '26, '27, obviously, you haven't given specific CASM guidance yet, but how should we think about your ability to take the slope of cost increases back down?

Yes. I think it's a good question because we're continuing challenging the organization on that. And I think the elements that are transitory are certainly we've seen from the inflationary pressures. You've already seen from PPI and CPI indexes coming down. So I think that's going to begin abating, and then you have another opportunity as contracts reset. From a labor productivity perspective, certainly, we will drive more efficiencies as the ramp-up of capacity will meet the employee -- new sort of employee base that has been built. So I think the onetime elements are, I would hope to say, behind us. And the rest of this hopefully is transitory, although I know the Fed got in trouble when they said that inflation was only transitory here, and we've seen that, that's not the case, but that I think at this point will get us beyond that.

So you mentioned New York Harbor for jet fuel. Can you remind us again how much of your total fuel you're buying out of New York these days? Is there any chance that you can somehow figure out a way to lower it? And just any observations with the spikes that we've seen in New York? Is there a better way to sort of manage those if they rear their ugly head again?

Yes. So our exposure to New York Harbor pricing, about 45% of our fuel is based off of New York Harbor. And you look at that and you watch New York Harbor pricing, and at the end of the day, as many of you know in the room here, that was really driven by supplies and inventory to the East Coast refineries. So watching those charts has been both, I would call it fascinating, on the one hand, to see how it escalated so quickly after the Russian invasion of Ukraine, but then also terrifying at the same time when you see that. And what you end up seeing is, as it gets to its spike, then you see cargoes turning around and actually then making it to the East Coast because they see that arbitrage opportunity and sell better there and better return. So it's come off, but we expect still to see spikes as we go forward. So what can we do about it? One is, we're locked into contracts that are based on that pricing. And so over time, we'll look at -- to the extent we can move some of our benchmark off of New York Harbor into either Gulf Coast or West Coast or Singapore or some other index. Although I'd go back and I'd say, if you look 10 years ago or 8 years ago, you would have seen actually New York Harbor was better pricing than Gulf Coast. So it's a little bit of a trade-off there. So when we look at that, the second thing that we try to do is we mitigate that by tankering fuel, moving fuel by rail from the west to the east. But then fundamentally, our best hedge, because you really can't -- there aren't really any products to hedge the crack spread of New York Harbor pricing. So it's been price increases and fare increases. And we've seen, given the demand environment, the strong demand environment, we've been able to pass along fare increases. And essentially, that is our hedge on New York Harbor dislocations here.

Okay. Let's talk a little bit about labor. I know you're not going to get into the specifics on where negotiations stand. But can you just talk about where we are in the process with the pilots? And any other groups that you're dealing with right now?

So you're right, Mark, I'm not going to get into the sort of the detail of that. Certainly, there are headline stories. We've all sort of been reading it. And certainly, pilots around they'll pay attention to what's going on. But we have long-term labor agreements that carry through, through '24, '25, '26, '27, as we entered a period 10 years ago with long-term labor contracts with our organized groups. So the first ones up are the pilots. And at this point, we have very good relations with our pilots, and our priority is to maintain that. We don't really have any other -- I mean there were openers during the course of the 10-year agreement with the pilots. And right now, none of the other groups are up for any negotiations, if you will, that changes their contracts. Their contracts carry through, through the various periods, so nothing really immediate, but we certainly are keeping an eye on what's going on.

All right. Let's shift gears from cost to revenue. So a couple of things. So you already mentioned upfront, Canada has lagged the reopening in the U.S. because there was a lag in the relaxation of restrictions and so forth. When you look to United's experience as one of your partners or just to the experience in the U.S., any sort of lessons learned as you continue on the sort of rapid ramp-up back in Canada in terms of maybe how to manage revenue better? You sort of mentioned the expenses, right, in terms of making sure that you have the staff in place for the summer peak and so forth. Just any comments in terms of how you're going to be dealing with what hopefully is still a very strong revenue environment this year?

Yes. Now we see a very strong revenue environment, very strong demand environment as we are seeing in Q1 and carrying Q2 and to Q3. So it's really our ability to execute on the schedule. And what we've learned from last year's operations challenges is you have to have everybody, and I mean everybody in the entire chain of providing services working to make sure that they're actually there to meet the requirements. And that's everything from the airports to security screening services, CATSA, to CBP, Customs and Border Patrol, NAV CANADA, U.S. CBP. All are sort of players to be able to say, yes, I can put my schedule out, I can fly it and I can drive that revenue that I need here. So the key lessons learned and has been working very closely with all the various agencies to make sure everybody is staffed up to handle the peak summer. But then more importantly, as we had a test here right now is in -- as we're going through spring breaks in Canada, we've had a big ramp-up of operations. Airports have been meeting the challenges. The agencies have been meeting the challenges, notwithstanding always the weather -- the weather impact that we get across Canada. It does snow up north. [ We bought ] a little bit here today, not very much for you, but I know it's been a dry winter here. But all in all, it's -- that's -- I'd say the key lessons learned is getting everybody to work together. Now on the other hand, I'd also say that one of the challenges going forward is this -- is the user pay model in Canada. And the user pay model, for those of you who don't know, is essentially sort of it is actually user pays. So NAV CANADA is supported by that. So essentially, during the whole course of the pandemic, they laid off employees and then bringing them back in, has taken the training, and essentially, money isn't invested back into the airport infrastructure. So I think that's sort of a more longer-term issue to deal with. But for now, we can fly our schedule. We can execute, drive revenue that we need that we see in terms of our guidance.

So maybe we can break down revenue into some of the key lanes for you. So when we think about sort of transborder, where are we right now in the recovery? Because I want to talk about transborder. I want to talk about Atlantic, deeper into Europe, Asia. Where are we in the recovery in each of those lanes?

Okay. Let's start with transborder. So transborder, we just recently announced our joint venture with United. And that is surpassing expectations right now. Basically, between us, we have 260 daily departures to across the border here. It's worked very well for both of our -- for the partners in it, and also for consumers, they have additional choice in terms of being able to operate. There, we have the ability to price together, manage inventory and so forth. So it really is -- it's an area that, from a capacity perspective, we're not back at 2019 levels. But from a traffic recovery perspective, we're surpassing 2019. So transborder remains a very strong market for us. Transatlantic, the other sector, is really performing very well. From very strongly in 2022, we saw our premium cabins booking up full, strong yield environment, strong demand environment, both in -- really throughout all of the markets transatlantic. Again, their capacity is not back at 2019 levels, but traffic is beyond 2019, again, with average fares up. Sun markets very strong. We're getting sort of the period here now. Again, similar trends. Capacity is not there in 2019, but traffic and average fares are up. South Pacific, strong with now with New Zealand, Australia, operating operations there. We've just added Bangkok. Japan and Korea are doing well. And perhaps the only thing that's sort of been the open question is, what happens with China? Is China reopening or not? We also have to deal with the issues of Russian overflight restrictions, which play a part of some of the China reopening. But -- so with the exception of China, which essentially we've pivoted to India to fill that China hole, and India has now sort of been a very strong market for us. Again, a combination of Canadian demographics as well as demand for services there.

Paid load factor upfront, is it at record levels right now?

Yes. Yes. It's at record levels. Even though you would say probably -- perhaps follow-up questions might be, what about corporate traffic? And is corporate traffic filling that? And the answer is, no, corporate traffic is still behind 2019. I've heard various comments around from the U.S. carriers of how they're seeing corporate traffic. It's not quite the same in Canada. But instead, what we're seeing is leisure traffic is booking up into the premium cabins. And so a very strong fare perspective there.

So can we talk about the competitive environment in Canada sort of post COVID versus where it was pre-COVID? I think I downloaded on my desk, I didn't read it, ISHKA put out a big analysis of -- for those of you that don't know what ISHKA is, they're one of the consultancies out there and appraisers and maybe they deep dive into the Canadian market. I saw a couple of the headlines, but I wanted to ask you about where we are with -- in terms of your competition from WestJet and others. There's a few start-ups. There's been some folks that have exited the market. So just did you feel like your competitive position is stronger or weaker, pre to post COVID?

It's an interesting way to put it, stronger pre or post. I would answer it this way, Mark. Canada has always been a very competitive marketplace. One only thinks perhaps of maybe just domestic competition. Before it was - it was just WestJet and Air Canada and a bit of Transat and then Air North, Air Porter, sort of the other small players there. But we are always competing against foreign flag carriers and from the Air Algérie, Air Marocs to the BAs and Air France, KLM and so forth. So -- and then from Asia as well into Vancouver. So we've always had to compete strongly, both from a product perspective, services perspective. So we're fine with all that. So it's been a competitive -- we believe we've got the right competitive products to compete really in all segments. What's happened during the course of the pandemic, which has been somewhat fascinating, perhaps it's all of the easy money that was out there, liquidity, airplanes and a lot of fleet available is -- we have like 4 new players that have decided to launch low-cost carriers, ULCCs, into the Canadian domestic market space. And that's a little bit been fascinating. So that is a very different dynamic in the Canadian market's domestic market space. So competition is definitely enhanced.

Is such a thing possible with airport costs in Canada, to actually have a ULCC?

It sort of leads to a little of my head scratching there because, look, I think many of us know, those that follow this industry, to be successful for an ULCC carrier, you would expect that, one, you've got population density. Well, you look at Canada, great 35 million citizens that stretch from coast to coast to coast. Second is you need secondary airports; not a lot of secondary airports in Canada. And third, high infrastructure costs. But for some reason, there's still sort of a belief, well, can still make a ULCC work there. So look, for us, competition is good. It keeps us sharp, keeps us on our toes. And basically, it forces innovation, and innovation in terms of products and services and how we can compete effectively.

One theme that we've discussed with a lot of your U.S. network peers this morning has been domestic margins versus international margins, and we've had different answers. Where is Air Canada right now in terms of domestic margins versus international margins?

Well, for us, it's -- it really hasn't been any secret since we took on the 787s, and we now have 37 of them, and 3 more yet to come, it's always been international is a higher-margin business for us. And that's how we diversified the network over the last 10, 12 years from being sort of 60% domestic, 40% international to now sort of switching more 45% domestic, 55% international. And we'll continue to sort of grow international business because at the end of the day, that has actually where the stronger margins are in that business. So for Air Canada, this has been a deliberate strategy of ours of growing the international network, and hence, sort of the investments we've made in fleet and the returns we've been able to get in the international markets.

What's that margin gap for this year, just generically?

I almost slipped. I almost was going to answer you.

Okay. You're not going to tell me? Do you expect it to remain stable this year? Or do you expect margin velocity, domestic versus international, to be different?

I'd say that margin velocity is as we expect sort of from our view of how the international contributes and domestic. So I'm not saying I'm seeing anything worse in domestic. And I'm seeing international sort of continues to do very well.

Okay. One more on revenue, which is cargo. That was something that was -- you notably did pretty well with cargo during COVID. How do we think about cargo going forward for you?

So cargo going forward for us is -- has really been a fascinating business. If I go back again to the 787s, each time we took a new 787 delivery, it opened up a new international market for us, which then opened up cargo opportunities, as cargo plays a big portion of the route profitability. And that model grew. And essentially, we grew a very strong relationship with freight forwarders. Our business is about 80% with freight forwarders. One of the things that the freight forwarders had always come back and their criticism of us was -- been you're in markets, you're out of markets because you move your capacity around, you swing widebodies in the summer and then you move them around narrowbodies, down gauge, et cetera. And so they want a consistency of products, consistency of space to complement the -- essentially the belly space that we've been selling. So we looked at this and during the course of COVID saw the opportunity to get back into the dedicated freighter business. So we have the 767s from Rouge that we retired. We took those 8, and we're in the process of converting those. We struck a deal with the pilots. We already have the infrastructure in place from our cargo warehouses, our systems to basically be able to grow and provide those cargo lanes that the freight forwarders looked at. And then more importantly, we had a network then to deliver it into, because it is still a network business to a certain extent. So also then, during the course of the pandemic COVID, we then saw, okay, well, this is doing well, strong demand. So we saw an opportunity to step into a couple of new 767 freighters and a couple of new 777 freighters. So by the time we get to 2025, we should have all 12 operating, 2 777s and then 10 767s. So we believe that cargo for us is a good strong margin business, and then it provides revenue diversification for the company and then also offsets seasonality. We're a very seasonal business. And so for us, cargo really helps smooth -- will help smooth that out. So for us, cargo is -- really is a good investment. It's a long-term business for us, and we look at that as really supplementing what we're doing on the belly space, belly side.

Let me revert back to my day job and talk about the balance sheet just a little bit here with 10 minutes left. Okay, a couple of things. So you're leverage target deteriorated in the most recent guide. The way I sort of described it to investors was, well, if you got to 1x, it would have been awesome, but does it really matter if you go up from 1x to 1.5x? It's still a pretty aggressive target relative to the peer set. Is that -- that leverage target, was that strictly because of that reduction, obviously, in free cash flow from $3.5 billion to $2.5 billion? Just trying to make sure I'm not missing sort of any other sort of assumptions or drivers in why that leverage target was relaxed.

Yes, that was really sort of it, at the core of it. And it was because -- and that cash came down because we made investments in the cargo side of the business, which [ one ] produced a little bit later.

Okay. Now do you still -- can you -- what is the balance sheet goal, right? Are you still talking sort of investment-grade-like metrics and let the ratings sort of fall out where they may? Do you have a desire to actually get to investment grade? You had metrics going into COVID. I always like to remind people that not only did you meet them, you met them earlier than expected and so forth. And so to me, you were always sort of the closest of the non-investment-grade airlines. You got really close and then COVID happened, and then you took a big step back. And at least your metrics sort of imply you could get there to the front of the line very quickly, but how are you thinking about it?

Well, listen, that's really pretty much how we're thinking about it. You're right. Right, going into the pandemic, we were maybe one notch away from investment grade credit rating. We were about -- we were 0.8 of a turn there. And then now it's rebuilding again, so like hit the big reset button. So that is still fundamentally our goal is to -- eventually is to get back to investment-grade credit if we can, because the rating agencies are very slow on the way up and quick on the way down, understandably. But we believe that, that target leverage ratio of 1.5x helps get there, helps get us there. And we'll hopefully then get a perspective of, yes, the business is hitting what it needs to hit. And we hope that, that gets us there from a ratings perspective, or the ratings will fall out where they fall out. Again, there's somewhat of a black box sort of modeling there. Certainly, that's one of the metrics that's looked at, but there are also a number of others that come into play.

But that's a little bit different. It's a little nuanced, right? Because we know Delta wants to get back there. American's just talking about BB and has no aspirations above that. But United is a little trickier because they're sort of saying BB metrics and whatever, we don't care about the ratings as much. You actually care. You actually want to get an investment-grade rating in your back pocket, correct?

That is correct.

Okay. So that's a little nuance. So can we just talk about unencumbered assets? So where are they right now? Are they growing this year? And how do you break down that bucket of unencumbered assets?

So our unencumbered assets have been growing, primarily because we've been purchasing our aircraft with cash. And then we actually plan to continue to purchase aircraft with cash through at least through 2024. So when we put that together, essentially, our investment-grade -- I'm sorry, our unencumbered assets are about CAD 4.5 billion, of which roughly 60% is aircraft, engines and simulators and then the other 40% is ground equipment, spares, real estate, accounts receivable, if you will. Now that excludes the value of Aeroplan. Aeroplan has, as a sub, if you will, has continued to grow and is doing very well. It excludes our cargo business and excludes our vacation business. So when you look at it all in, a very strong pool of unencumbered assets.

Now your U.S. network peers have all tapped into loyalty as a form of financing. We've talked a little bit about -- I've talked with Pierre about this on your team, your treasurer, about some of the tax hurdles that make capping loyalty more difficult for you versus what American, United, Delta, others have done. Any outlook for that changing? Or is it still something where you're not actively seeking loyalty type financing is my sense, but you tell me.

Yes. No, we aren't seeking any loyalty type financing or any other financing at this point because we ended the year with about $9.8 billion in liquidity, so a very strong liquidity basis here. There haven't been any changes in the tax laws there that would preclude us from doing something if we needed to. It's just there are a lot of boxes to tick in terms of offshore, onshore, data privacy issues, et cetera, that are a little bit different from U.S. side.

Some more friction, right? Because you can't use the Cayman Islands the way they did.

Exactly.

So forth. Yes. Okay. So just another little nuance there that I want to make sure we talked about. And then last thing for me, and then we'll see if we have any questions from the floor here, is I know export credit has been readily available for you, and you're paying cash for aircraft and so forth. What are the next aircraft that either don't have export credit or that you don't think you're going to pay cash for? And when those aircraft are delivered, what are you going to do with them? Could we see an Air Canada EETC? Are you going to go to bank debt? Are you going to do a sale leaseback? The next naked aircraft, what do you do with them that need to be financed?

The next naked aircraft that we need to be financed will be financed with -- out of treasury, out of cash fairly much. Sorry, I know there's some business. Dana's been trying to settle some business here. Is Dana still in the audience? No, Dana's not here.

She would love to do a EETC.

She would really -- I know she was pushing us to do a EETC, but there really isn't any -- we don't have any export credit on the rest of -- on our book of deliveries here. Certainly, if we wanted to do any sort of commercial type debt, EETCs or export credit, we certainly could, but nothing is really on the list for now. We're very good from a [indiscernible] perspective, and again, plan to pay for all deliveries through 2024 with cash.

Great. Questions from the room? We have one upfront. I can't pass the mic so you have to wait to my partner over here, my mic partner.

So you give a range for EBITDA by 2024, but you're firm on the actual leverage target of 1.5x. Let's say you come in at the lower end of the target or maybe even somewhat shy of that, right? Should the expectation be that you guys will pull back on fleet investments in order to hit that 1.5x target?

No. I don't -- we would not be putting -- pulling back on the fleet investments. We believe those are really fundamental towards growing the network and producing the earnings that we need to sort of continue to drive performance. And eventually, if, let's say, we end up at 1.6x, to make up a number, 1.7x, I don't think that's the end of the world. So it's okay, we've moved closer and then it may just take another 6 months or whatever it was at that point that you wouldn't do it, but it wouldn't change the capital profile right now in terms of what we're looking at in future aircraft deliveries here.

Got it. And then even if you come up on the high end of the EBITDA range, right, it looks like you have about $1.5 billion of debt that would have to come down to meet your target. Is that going to just come from natural maturities? Or are you going to actually target specific debt to take out perhaps earlier than scheduled?

Stay tuned to that.

That was actually one of my questions because you have some very expensive -- you have some 10% tranches out there and so forth. We can sell you some of those if you want.

Any? For how much?

Talk to my trader. But we love that paper. The -- and that really gets to my final question, which is just where -- you mentioned over CAD 9 billion, right, of liquidity right now. So when you think about not minimum liquidity, but target liquidity, how much excess liquidity do you feel you have right now to do what was just sort of referred to, to do liability management and so forth, or rainy day cushion above and beyond that you could do whatever with?

Yes. No, it's something we continue to debate internally from a perspective of, well, we want that little bit rainy day. We know what the impact is of a slowdown of traffic. And so we want to be able to sleep at night with that. We also know if you sort of set another benchmark, what's your ATL liability or ATS, advanced ticket sales, advanced ticket liability, so we want to be able to cover that. And it begins sort of drawing a parallel of, here are some bookends of where you would take down liquidity to some minimal levels, but certainly, we are sitting on excess liquidity. Is that number -- the number is definitely south of where we are here at close to CAD 10 billion. And we'll continue to look at that as we feel comfortable with the pace of recovery, and that's really been sort of the key determinant here is, is this recovery real? I think we're now beginning to see the recovery is real. It's progressing at a faster pace. I don't think we'll see at a point here, knock on wood, that we'd ever see a shutdown of travel again. We're just sort of knocked us all back on our feet. No, I think we'll be making probably some other comments as time gets -- goes by here.

I'll sneak in one last one, which is you mentioned air traffic liability. Given the lagging ramp-up of your network versus the U.S. peers, they have said they've returned to what is now a normal seasonality of ATL. Is that still almost sort of a year away from you, if you will? Will 2023 show the go-forward seasonality of the air traffic liability? Or does it take another year to sort of reset properly?

I think it may take about another 6 months, only because of the fact that Canada was closed down for pretty much the first half of the year last year.

Amos -- we have -- I was just going to say merci beaucoup, but sneak it in, go, quick.

A couple of quick questions. What are your alternatives [indiscernible]? And then secondly, how do you manage the -- or how do you measure the ability of the cargo versus the flights as air freight rates come down to know if cargo is getting a good return versus transporting people?

Okay. So the first part of your question, yes, what I've mentioned in terms of our ability to hedge and take the impact of New York Harbor, we do move oil cars, if you will, our jet fuel from the prairies by rail to Toronto, which essentially helps offset some of that cost. But we can't -- it's not an endless supply. So it's really sort of opportunistic. We do have a number of rails that are under lease that we -- we do move that. So we do take advantage of that. And the second part of your question is -- one thing that airlines are good at is essentially isolating and segregating costs. And so when we looked at that decision, it was fully burdened. And you can look at it on different metrics, et cetera, but we don't give cargo a pass and look at that independently and say, yes, those margins are really good because the network should carry this portion of it and not allocate it. So we look at it very carefully, fully allocated across.

And with that, merci beaucoup.

Thank you.