Air Canada (AC) Earnings Call Transcript & Summary

Welcome to Air Canada's First Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to Valerie Durand, Head of Investor Relations and Corporate Sustainability at Air Canada. You may begin.

Thank you, Sarah. Hello. [Foreign Language] Welcome, and thank you for attending our first quarter 2025 earnings call. Joining us this morning are Michael Rousseau, our President and CEO; Mark Galardo, now our EVP and Chief Commercial Officer and President of Cargo; John Di Bert, our EVP and CFO. Other executives are with us as well, Arielle Meloul-Wechsler, our Chief Human Resources Officer and Public Affairs; Craig Landry, now our Chief Innovation Officer and President of Aeroplan; Marc Barbeau, our Chief Legal Officer and Corporate Secretary; and Mark Nasr, now our EVP and Chief Operations Officer. After our prepared remarks, we will take questions from equity analysts. I remind you that today's comments and discussions may contain forward-looking information about Air Canada's outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. Please refer to our forward-looking statement in Air Canada's first quarter 2025 News Release available on aircanada.com and on SEDAR+. And now I'd like to turn the call over to Mike.

Well, thank you, Valerie, and good morning. [Foreign Language]. Thanks for joining us. We did experience some turbulence in the first quarter, however, managed all of it very effectively. We focused on controlling what we can control, adding resiliency to guard against things we cannot and continue to pursue our strategy to deliver on our long-term commitments. We reported first quarter revenues of $5.2 billion, which were essentially the same as last year. We had an operating loss of $108 million and adjusted EBITDA of $387 million, better than market expectations. Uncertainty was for sure the main theme during the first quarter, related both to tariffs and the potential impact on the broader economic environment. Further, as it has been widely reported, we observed a decline in interest among Canadians for travel to the U.S. The noise around tariffs and trade disputes definitely had an impact, but also we believe some travelers avoided the U.S. simply because it was expensive with the Canadian dollar trading at levels not seen since 2020. That said, this remains contained as we are experiencing booking declines on the transborder market in the low teens on average over the next 6 months. And when compared to other network carriers, we have a much more diversified network balanced between domestic, transborder and international, allowing us to connect Canada with 6 continents. So overall, booking trends remain stable, reflecting the diversification and resiliency of our network, and Mark will have more to say about our revenue performance. Given this context, there are many things to be proud of this quarter. To begin, we acted quickly to reallocate capacity, moving to markets where demand was greater and derisking our profile. Our established global footprint and fleet allowed us to adapt to travel trends and capitalize on them. Second, our advanced ticket sales grew by $1 billion from the end of 2024, driving $1.5 billion in cash from operations and $831 million free cash flow generation in the quarter. Third-party billings at Aeroplan continued to be very strong, growing 7% year-over-year and supporting cash generation. Our teams worked hard to maintain strong operational performance. We continue to build momentum on the improvements made in the last 2 years with gains in on-time performance, baggage delivery and customer satisfaction, and we are on track to meet or exceed our Net Promoter Score expectations for the year. Our core is fundamentally stronger as demonstrated by increased resiliency. For example, quicker recovery after large-scale disruptions as we saw at Toronto Pearson in February. Careful planning and good execution are yielding the intended operational benefits. And finally, we concluded the NCIB program announced last November, and we are continuing with our just announced substantial issuer bid, which we'll speak of in a bit. Looking ahead, we are being prudent in assuming market conditions will remain unsteady. Consequently, we are moderating some of our expectations and updating our full year guidance. We continue to focus on those factors we can control. Chief among those is cost, which we will manage through greater efficiency and a $150 million cost reduction program for 2025. Our team has repeatedly demonstrated it is disciplined and adapts quickly to seize opportunities. We will continue to draw on these strengths to deliver on our long-term commitments. And just before I hand it over to Mark, I want to thank our employees for their hard work and professionalism in taking care of and safely transporting more than 10 million customers this past quarter. And I'm certainly grateful to our customers for their loyalty in choosing Air Canada. Thank you. [Foreign Language] Mark?

Thanks, Mike, and good morning, everyone. [Foreign Language] Thanks to all our employees for their commitment and passion in helping us deliver these Q1 results. Our overall Q1 performance was impacted by several factors. As the quarter developed and despite a relatively strong start to the year, we witnessed progressive weakening of demand caused by raised levels of uncertainty, macroeconomic concerns and trade tensions. This affected more acutely the transborder market and was mostly felt in the month of March. We also saw during the quarter greater competitive capacity in markets, including Asia Pacific, India and the Middle East, thus impacting results in particular markets such as China and Hong Kong. The shift of the Easter long weekend to Q2 also influenced the quarter and should be kept in mind when comparing to Q1 2024. Recall, we also sustained within a week, 2 major winter storms and the accident involving a foreign carriers aircraft. This brought significant travel disruptions in Toronto and Montreal. The estimated EBITDA impact of these events was around $35 million for the quarter. And lastly, as we think about Q1 '25, we had a peak Airbus A220 out-of-service count and other fleet maintenance challenges. These influence the operational and RASM qualities of the schedule we flew. In sum, quarterly passenger revenues totaled $4.3 billion, a decrease of 3% year-over-year. We carefully managed yields, which grew slightly year-over-year. We also reduced capacity in anticipation of demand weakness. But before I discuss per market, let me outline what stood out this quarter, which were the benefits of our balanced network, leading premium product and diversified loyal customer base. Now I'll begin with domestic passenger revenues. These were flat year-over-year as lower yields offset the traffic increase. Capacity grew 4% year-over-year, as we reallocated some transborder capacity into the domestic market in March in response to the weaker demand for U.S. destinations, but we were fast to adapt and contend with a challenging commercial environment in the transborder market, while perhaps others lagged. We reduced exposure to certain U.S. destinations and reallocated some capacity to where we saw good demand opportunities, for example, in the sun market. We skillfully managed yields and contained the transborder revenue decline to 5% versus Q1 2024. Lastly, recall that Q1 is the quarter that sees the greatest proportional activity to sun leisure markets. In Q2, our network shifts towards international markets, notably the transatlantic market with higher quality margins. We remain vigilant for developments in the market and possess ample flexibility to manage capacity. Atlantic passenger revenues declined 4% due to lower traffic year-over-year, primarily due to increased industry capacity to the Middle East in the Indian subcontinent and of course, the shift of Easter to Q2. This was partially offset with better yields, mainly in Western Europe and in the U.K. Sixth Freedom revenues grew 12% year-over-year, a good portion of which was into the Atlantic market, and we expect our Sixth Freedom traffic and revenues to remain solid this summer. Pacific passenger revenues declined 6%, largely due to lower yields year-over-year as supply and demand balanced out followed significant capacity growth in the market in 2024. Our performance in our sun market is worth calling out. Traffic and yield grew year-over-year, driving a 2% growth in other passenger revenues. Results were solid in Mexico and the Caribbean, as Canadians look for alternative destinations. Jumping ahead to other revenues. The strong performance of sun destinations also boosted ground package revenues at Air Canada Vacations, which drove the 8% increase in other revenues. Our well-established premium offering remains attractive with revenues increasing 2% on slightly less capacity from Q1 2024. And then finally, cargo revenues increased 16% to $250 million from the previous year, as shippers try to get ahead of tariffs and changes to U.S. duties. We expect a more normal environment for the rest of the year. Now as we look forward, we're almost halfway through the second quarter and have very good visibility into the third. We are encouraged by recent bookings, which are aligned with prior year's trend. For the second quarter, we are booked close to 80% of our total forecast, which is typical at this point and more than 50% for international for the third quarter. System-wide, as we look to Q2 and beyond, we see an overall resilient demand trend. As we've often mentioned, Air Canada's network diversification is our key differentiator relative to our peers. This is on full display as we navigate the current uncertain environment. Our Q2, Q3 network is weighted heavily to international long-haul routes, which continue to show encouraging demand strength. Our lucrative transatlantic sector is rebounding after a year of normalization in 2024. Our sixth freedom traffic has booked well ahead of last year and out of our initial expectations for 2025. We do see favorable demand shifts to Europe, domestic Canada and certain Asia Pacific markets like Japan, Thailand and Australia, and our capacity reallocation strategy reflects these shifts. The point-to-point transborder market does remain the exception where we're experiencing booking declines of the low teens on average over the next 6 months. That being said, the transborder market typically books closer in. As we've been doing, we will be leveraging our network diversity to reallocate capacity to where we see good demand. A good example of this is our new Montreal-Edinburgh flight that starts in this upcoming summer using a 737 MAX, which we source from the capacity changes on our transborder network. But for sure, in making these changes to our U.S. network, we are strategically protecting our sixth freedom flows. Taking all this in, we have trimmed our system capacity growth for the year and now expect 2025 ASMs to grow between 1% and 3% from last year. And for the second quarter, we expect capacity to grow between 2% and 2.5%. We look forward to a progressive return to service of our Airbus A220 fleet. We will also be welcoming additional 737 MAX and A220 aircraft in the coming months. And as we advance into 2025, our schedule will have fewer red-eye flights and fewer suboptimal departure times, creating a more convenient daytime schedule that will better promote connectivity at our 3 hubs. And thus, we will significantly improve our schedules on a variety of promising routes that will, in turn, boost overall margin capability through better yield and RASM performance. And when we look further out, our schedule is being firmed up for the winter season. Earlier this week, we announced our largest network expansion to Latin America to date with 16% more seat capacity beginning in late October. We will launch new nonstop routes from cities such as Halifax, Quebec City and Ottawa, and our presence in South America will grow with flights to Rio de Janeiro, Cartagena, Guatemala City and Guadalajara. We built our Latin America schedule to capitalize both on local and transatlantic sixth freedom demand, including cargo opportunities. These strategic additions show how we can capture demand using the advantages of our robust and well-positioned hubs, our large wide-body fleet, our diverse network, a robust Aeroplan program, our strong premium product offering and a compelling suite of branded fares that appeal to various customer segments. In addition, we have successfully launched other revenue management initiatives, including updates to brand the fares and innovations such as continuous pricing, both with initial positive results. We are navigating market changes and seizing opportunities with our strong commercial base and dedicated team to meet our long-term commitments. Thank you [Foreign Language]. And John, over to you.

Thanks, Mark. Good morning, everyone. [Foreign Language] A special thanks to our employees for their hard work and perseverance during a challenging quarter [Foreign Language]. In Q1, we reported an operating loss of $108 million and adjusted EBITDA of $387 million with an adjusted EBITDA margin of 7.4%. Operating expenses increased to $5.3 billion, driven by higher depreciation, ground package costs and the year-over-year weakening of the Canadian dollar versus the U.S. dollar. Jet fuel prices fluctuated and averaged close to CAD 0.98 in the quarter, an 8% decline year-over-year. This tailwind helped partially offset some of the cost increases. In April, we hedged about 20% and 17% of our anticipated jet fuel purchases for the second and third quarters, respectively, at an average price of CAD 0.80 per liter. This includes taxes and other charges. Moving on to unit costs. Q1 adjusted CASM was $0.153, up 3.5% from the previous year that we contained the increase is significant, considering the weaker Canadian dollar versus the U.S. dollar and lower than initially planned capacity. I'm proud to report that we have achieved our labor productivity targets in the first quarter. In March, we took delivery of the last 787-9 aircraft, bringing the total to 32 at the end of the quarter. This accounted for the year-over-year increase in CapEx in Q1. In the quarter, we purchased and canceled over 15 million shares for a total consideration of $350 million, effectively completing the NCIB program announced last November with 35.8 million shares purchased and canceled. Our capital allocation strategy remains consistent, generate strong cash from operations, make quality investments in our airline, maintain leverage below 2x and return cash to shareholders. Turning to our balance sheet. We ended the first quarter with $9.5 billion in available liquidity with a net leverage ratio of 1.3x, down from 1.4x at the end of Q4 2024. We feel comfortable with our liquidity profile. We generated $1.5 billion in cash from operations and $831 million in free cash flow in the first quarter. Cash flow was driven by the increase in advanced ticket sales ahead of the peak travel season, and this is in line with our expectations. A solid balance sheet and strong cash generation provide valuable flexibility, which we can leverage to create value. We're delighted with the announcement of our substantial issuer bid for the purchase and cancellation of up to $500 million worth of shares. This bid reflects our confidence in our future and our commitment to delivering shareholder value, while creating a world-class global airline for our loyal customers and all stakeholders. We remain focused on managing risk responsibly, preserving a strong balance sheet and seizing opportunities. Our buyback program is consistent with our capital allocation road map and our strategic plan shared at our December 2024 Investor Day. Details will be announced next week when we launch the bid. Also ahead, we plan to settle our outstanding convertible notes in cash at maturity, effectively reducing potential equity dilution by about 18 million shares. Factoring this in, together with our soon-to-be launched substantial issuer bid, we are well on track to reach our target to be below 300 million shares by 2028. Now turning to our fleet plan. We expect to receive 8 A220s this year. In April, we received the 737 MAX aircraft, reaching a total of 46 aircraft in our operating fleet. The Airbus A321XLR will be delayed by a few months with the first aircraft now due to be delivered in 2026. The 787-10 deliveries are also delayed, and the first 2 aircrafts are now expected in 2026. We are proactively managing and working with our partners to mitigate impacts of the OEM delivery delays in 2026 through 2028. The capital commitment table in our Q1 documents reflects these fleet changes. Our fleet strategy is not only financially accretive, it also benefits our customers, unlocking new destinations and allowing us to enhance our existing services and onboard products. Yesterday, we updated our full year guidance in our earnings release to account for recent changes in market trends and expectations. Now let me dive a little further into some of those components. We now expect 2025 adjusted EBITDA to be between $3.2 billion and $3.6 billion. This range accounts for updated revenue expectations for the year as well as the evolving fuel pricing environment. Jet fuel should average about $0.88 per liter for the full year, which is lower than our prior expectation of $0.95 per liter. Our forecast considers the lower than initially planned operated capacity in the first quarter as well as our updated plans for the rest of 2025. Our unit cost expectations are unchanged with full year adjusted CASM predicted to land between $0.1425 and $0.145. Mike noted the company-wide cost reduction program we recently launched. This program includes, among other measures, the deferral and reprioritization of certain projects, third-party spend management and continued staff productivity. We are aiming to reach $150 million in savings for 2025. And as of today, we are well on track to achieve it. Through our cost management actions, we expect to mitigate unit cost increases from the lower capacity growth. I remind you that our CASM expectations also include our assumptions around the evolving regulatory environment, higher airport infrastructure fees, continuous -- continued maintenance cost inflation, the full impact of our new pilot agreement as well as estimated changes from a future agreement with our flight attendants. On the latter, we remain engaged and at the negotiation table and the negotiations are productive. The entire team at Air Canada is focused on managing controllable factors, including strict cost management and swift strategic capacity adjustments to ensure a strong performance in key financial metrics. Our free cash flow projections remain unchanged for the full year. We expect to achieve breakeven free cash flow, plus or minus $200 million with line of sight to positive free cash flow generation. Finally, our 2025 guidance assumes a marginal GDP increase for the current year, aligned with expectations from the largest banks and the IMF. It does not contemplate a recession scenario. We continue to assume the Canadian dollar will trade at an average of $1.40 per U.S. dollar for the year. This is lower than the high levels seen in the first quarter of 2025. And while the tariff environment continues to evolve, it remains somewhat contained, if you consider our plane deliveries for the next year. We are working with suppliers to mitigate any significant impacts to our 2025 expectations. To conclude, we remain firmly committed to our 2028 targets and our 2030 ambitions. With confidence in our strategic long-term plan, we are poised to drive substantial shareholder value and ensure a prosperous future for Air Canada. Back to you, Mike.

Well, thank you, John. As you can see, we are effectively managing uncertainty through a solid long-term plan, the commitment and discipline to carry through to completion and the agility to adapt quickly to stay on course. In the first quarter, Air Canada showed it has all these attributes, and we will use them to build value for shareholders by concentrating on those things we can control. Along with revenue generation, we are sharply focused on costs. In the quarter, we acted decisively, putting in place the cost control measures John spoke about. And we will reinforce our cost reduction program through process improvements to increase efficiency, such as our ongoing on-time performance and baggage handling programs, which bolster customer satisfaction and loyalty. At the same time, we will keep developing our business. This includes introducing new routes such as the recent launch of service to Manila and others Mark spoke of. We continue to be the leading international premium carrier, offering the best of Canada at home and around the world. And it includes investments in new aircraft and new customer services such as the new Air Canada Café in Montreal or our recent launch of fast free Wi-Fi onboard. As a new cabinet will be formed next week, we're encouraged by the commitment made during the campaign of a new $5 billion Trade Diversification Corridor Fund, which includes investments in airport infrastructure. We look forward to working with the government to modernize the air travel system in Canada and facilitate greater investments in our airports. These necessary investments will keep us competitive and further increase our Net Promoter Score. They will also further deepen loyalty, which is already strongly supported by Aeroplan. We were pleased to win Program of the Year among other recognitions at the well-respected Freddie Awards recently. Aeroplan, along with our products and schedule, forms the core of our customer value proposition, delivered with care and class by our people. And we will continue to execute in a well-timed and disciplined manner as in the case with our substantial issuer bid announced yesterday. Over more than a decade, we have developed a strong and resilient foundation that provides multiple competitive advantages. These include our diversified revenue base, robust balance sheet and liquidity management, a modern and agile fleet and a deep global network connecting all areas of Canada to the world. All of these are amplified by a widely recognized and powerful brand, Air Canada Cargo, Air Canada Rouge, Air Canada Vacations and an enhanced customer experience with competitive and premium products and services, including our leading loyalty program, Aeroplan. In all of this, we are guided by our -- by the strategic plan we laid out at Investor Day late last year. This includes targets we set out at the time to create long-term shareholder value. While the route to reach these targets may change somewhat, I can assure you, on behalf of the entire management team and all employees at Air Canada that our determination and ability to achieve them has not. Thank you [Foreign Language].

Thank you, Mike, and thank you all for joining us this morning. [Foreign Language]. We're now ready to take your questions. Should you require further details following this call, our Investor Relations team is available for support. Back to you, Sarah.

[Operator Instructions] Your first question comes from Kevin Chiang with CIBC.

Maybe just my first one is, it sounds like sixth freedom traffic is outperforming initial expectations this year, but you're also adjusting your transborder routes, as you mentioned earlier as well. Just wondering how -- if I think of this kind of over a medium term, how adjustments to your transborder capacity might impact that sixth freedom traffic growth? It seems like you might -- it might limit some of the point-to-point connections that drive some of that international opportunity. And then maybe how that might impact? Also how you think about the corporate travel recovery as you reduce frequency into the U.S.?

Kevin, very, very good question. So firstly, on sixth freedom, we have not adjusted or touched any of our flights that connect into our international banks at any 3-hub airports. In fact, we've increased capacity at those specific times to make sure that we can promote as much sixth freedom traffic as possible and early results show that, that was a good move. And in terms of our schedule, we have not, at this point in time, cut any key business flights on key routes like Toronto-New York, Toronto-Chicago, et cetera. We still have a very well-diversified schedule that promotes corporate recovery. And at this point in time, the corporate demand on the U.S. still remains stable.

That's helpful. And maybe just my follow-up question, maybe this is to John. You mentioned working with the OEMs as you kind of contemplate tariff risk. I guess as you think of your longer-term CapEx, is there any color you can shed in terms of how you think which party bears the risk to the extent that tariffs potentially are -- could add to that capital budget to the extent that tariffs are applied to some of your fleet plan there?

Yes, it's a good question. I think that's still an evolution. So we will continue to stay close. And every contract has some different features to it. So a lot of this is probably through indices -- inflationary indices that would then be affected. But I think it's early to speculate on what that might be longer term. And we're going to continue to work with both the airframers. In the short term, no impact on our perceived here for 2025. Most of the '25 deliveries are Canadian-made A220s. And so there's a few Boeing aircraft coming in, but most of those are almost complete, so on their way to us and shouldn't bear any tariffs. So for 2025, we have a pretty good line of sight. And then for '26, '27, '28, we'll work with them and have to manage accordingly.

The next question comes from Savanthi Syth with Raymond James.

Maybe if you could put a little bit more color at the geographic entity level on kind of what is reflected in that 1% to 3% capacity guide for '25. Just like how you're planning on kind of allocating capacity on a year-over-year basis kind of as you go through the rest of the year here at the entity level?

Savi, it's Mark. So on the U.S., right now, as you can see, our capacity is down roughly, depending on the month, anywhere between 8% to 10%. I think we'll see that continue all the way through Q3 and possibly into Q4. On the Atlantic, we've got a low single-digit ASM growth. We have high single-digit growth on the Pacific, as we return service to China and in particular, we add a new service to Manila. And on the sun market, which includes the Caribbean and also South America, we'll be looking at mid-single-digit ASM growth with a particular growth in Q4, as we've announced these new Latin American destinations.

That's helpful. And just following up on that. So from a trend level, what we saw in 1Q, I suspect transborder sees a bigger hit in the second quarter just because you're seeing a full quarter impact. I'm just kind of curious if you could talk about versus 1Q, maybe how sequentially things might be looking at the entity level here.

Is your question as it relates to transborder or overall?

All. Yes, all the entities just come from either revenue or revenue basis, just how we should think about the sequential trend?

Yes. I think I've outlined the trends in the sense that if you look at Q1, the U.S. drop was progressive and it really kind of accentuated in March, and we start moving capacity into the sun market and domestic market. That continues all the way through Q2 and Q3. Q4, we have a bunch of options on the U.S. to moderate capacity or to further add back depending on how market conditions evolve. And the rest is, as we've outlined, domestic will stay with single-digit growth. The domestic market for Q2, Q3 looks stable in terms of passenger growth, and we see a rebound on the Atlantic.

Sorry. I meant on the revenue side, but it sounds like it's pretty been consistent, except for maybe the transporter. Is that fair?

Yes.

The next question comes from Greg Konrad with Jefferies.

Maybe just to drill into Pacific a little bit more. I mean you gave a little bit of color, but you called out normalization of yields in the quarter. Can you maybe just talk a little bit about what you're seeing into that region into Q2 and Q3 from a yield basis?

Yes. Thanks. Great question. So it becomes a story of compares. Last year in Q1, what we saw is a market that -- where the demand-supply imbalance was more towards the side of having not enough supply in the market. We had a very strong yield and RASM performance in Q1 of '24. And if you recall, last year, we shifted capacity away from the Atlantic into the Pacific in Q1. As we roll over Q2, Q3, that's where we started to see last year some Pacific yields normalizing. And we should see in Q2, Q3 relatively flat yield on the Pacific overall and strong demand load factor like we had last year.

And then maybe just a follow-up. If we look at the disclosures, it looks like expenditures dropped planned for 2025 by $400 million or so shifted out of the year. Can you maybe talk about that? And was that largely the offset to the lower EBITDA just in terms of the ability to keep the free cash flow guidance unchanged year-over-year?

Yes, I'd say that there was a little bit of moving on. I highlighted some delays on deliveries in '26, '27. So those do come with PDPs that would have been paid in 2025. So there's some PDP movement, first of all. And then I think we had a couple of 220s move out of the year as well. So that's really just delivery schedule. And there was then some self-help in there, probably a couple of hundred million dollars that we just manage the business. And I think it's just a good prioritization, keeping focus on the right things and just making sure that we're not doing too many things at the same time. So a little bit of self-help and then some movement in the schedule.

The next question comes from Thomas Fitzgerald of TD Cowen.

I was wondering on the cost front, it's great to see your confidence in the progress you're making in your cost initiatives. Are there any -- would you just mind unpacking where you're seeing the most outperformance and then what your priorities are, just maybe like specific focus areas for the rest of the year on the cost initiatives?

Yes. We're seeing good traction on productivity. So -- and we continue to launch technology into the business that I think is helpful and helps us continue to really, I mean, absorb growth even though it's a little bit more muted than expected. We still do grow, and that allows us to grow that -- the business more efficiently. So I'd say that, that's continued through 2025 and frankly, through the next 3 years. I think we're also -- as I just mentioned here, just good prioritization and making sure that we're focused on the key most value-creating projects. And so there's kind of management of priorities there as well. And then supply chain, we're always active, and I think we always do a good job of finding savings with respect to third-party spend, delayed a little bit on the fleet and the cost efficiency from new aircraft given just the longer delivery schedules from OEMs. But I'd say that's going to be more '26, '27, '28 kind of value for us.

Okay. That's great to hear and great color. I appreciate that. Just on the other revenue line, you guys had a really nice growth in the first quarter. And I'm just wondering what you -- if that's like -- that you're expecting kind of that elevated growth for the rest of the year or if that was maybe more of a one-off with ACV? Or just how we should be thinking about that line item between vacations and Aeroplan?

Thanks. Good question. It was largely Air Canada Vacations as we saw a big shift in travel demand away from U.S. leisure destinations to sun destinations. So I think we saw ACV grow their revenues by 8% in Q1. I think we might see a little bit of that in Q4, but typically in Q2, Q3, sun destinations become a little bit less popular.

The next question comes from Konark Gupta with Scotiabank.

Just on the yield, I'm just thinking the forward bookings you're seeing right now, and you mentioned, Mark, down low teens for U.S. transporter, but then you're seeing incremental demand for select markets. How is the yield faring in these advanced bookings right now? Are you seeing any big deceleration? Like do you have to stimulate the market a lot to create the demand as an offset to transporter?

Konark, at this time, we don't see any yield deceleration. In fact, yields look stable all the way through Q2 and the initial part of Q3.

And this does not vary by the market, I guess -- I mean, like even transporter?

Not right now. We've reduced our exposure to U.S. leisure destinations where you might see a bit more sensitivity on the yield. So we're less exposed there. On the transatlantic, we're rebounding from a year where yields normalized last year. So we might see a bit of yield growth on the transatlantic. And on the Pacific, we're lapping over last year where things start to normalize as well. We'll see some yield impact in markets like China and Hong Kong, where there's substantially more capacity by Chinese carriers and Hong Kong-based carriers, but that gets offset by strength that we see in markets like Japan and Australia.

Makes sense. And if I can follow up on the other side, John, perhaps CASM. It came in like Q1 was pretty much in line with what you're expecting for the full year at the low end, call it. With the cost saving as you realize those numbers, do you see the CASM improving sequentially from here in terms of year-over-year growth? Or should we see more like a stagnant kind of growth cadence?

I think that -- I mean, sequentially from Q1 to Q4, you should see, obviously, it come down. I think we peaked here in Q1 at 15.3. Probably Q3 last year was a very good quarter, if you recall. So we're going to have -- probably it's going to gap out in Q3 2024 versus 2025, probably going to show the biggest gap. But I would say that overall, kind of the mid-14 with a good summer number. That's kind of where we're going to be. And on the full year, we're holding pretty much bang on to where we started our expectations. And it was mentioned before, about $400 million. If you think about that, it was -- the first thing that we did right is we really got on to adjusting capacity and taking out variable costs quickly to also then pursue some of the additional cost reduction that holds the CASM in place for the full year. So on a downward trend for the remainder of the year, we're gapping out in Q3 against a very favorable Q3 last year.

The next question comes from Steve Trent with Citi.

The first is just regarding actually on a high level, thinking about the 2026 World Cup. I believe Toronto and Vancouver are host cities. How are you thinking about that as potentially moving the needle on yields or volumes? I believe, for example, last year's Olympics were at least a short-term damper on RASM on the North Atlantic, but just love your high-level view on that.

Steve, it's a bit early to tell. Interestingly, we put a task force internally for the World Cup, thinking that how could demand evolve and what opportunities could that have, but way too early right now to speculate on what that will do to demand and overall yields.

Okay. Understand. I appreciate it. And just as a quick follow-up, I was also keen on your comments into Latin America. Any high-level view in Mexico, specifically how you're thinking about servicing or potentially servicing the relatively new government-controlled airports such as Felipe Angeles in Mexico City and Tulum?

Well, as it relates to Tulum, I think it's no secret that the industry in general put a lot of incremental capacity into Tulum and you're seeing some carriers rationalize a bit. There was a lot fast in that market. We ourselves on Tulum are going to pare back a little bit of our service there and really kind of double down on Cancun, which performs quite well for us. We're adding Guadalajara, which we're very excited about, not only for the local traffic, but also timed extremely well for international network connectivity, and we think we can have a decent proposition in the sixth freedom play between Europe and Mexico. We're going to restore Monterrey from Toronto and the reason why we had to suspend that in the winter was due to some A320 fleet challenges. So overall, we like the Mexico market, but we also like the counter seasonality of that market and the potential sixth freedom contribution that it can make to our international network.

The next question comes from Fadi Chamoun with BMO Capital Markets.

Just a couple of quick things. So Mark, there's a lot of kind of yield normalization, I guess, as we go into Q2, Q3 in both Atlantic and Pacific. You gave us some indication about the Pacific yield. Can you talk to the Atlantic yield and maybe overall yield as we go into Q2 and Q3? Should we think something more in line with seasonality? I think you typically get a 2% sequential bump in yield in Q2 versus Q1. And I think this Q1 was particularly impacted by Easter and a few of these issues at Pearson. But just kind of indication how we should think about RASM progression or yield progression overall and specifically for the Atlantic as we go into Q2 and Q3? And maybe another quick one on any initial reaction to Onex' or as a WestJet equity stake sale to Delta and Korean Air?

Fadi, it's Mike. I get to answer your question, that's great. I'll deal with the Onex and then Mark will deal with the -- your first question. It shouldn't be surprising to anybody. I mean Delta does have a relationship with WestJet and has had one for quite some time. And we all know Delta has a strategy of putting minority interest in airlines around the world. So it doesn't really surprise us, and we'll monitor it, and we'll see what -- if anything changes over the next little while, but we don't expect anything.

And Fadi, this is Mark. On your question on yield and RASM and normalization, important to note that it was last year in Q2 '24 that we start to see the Atlantic yield and RASM normalization. So the compares become a bit easier this year. What you should anticipate for Q2 and Q3 is overall favorable yield and RASM progression on the Atlantic, especially in Q2. And on the Pacific, you'll see stable in both those metrics. It's just Q1 last year was exceptionally strong on the Pacific, and that causes a bit of the compares being a little bit unfavorable in Q1 this year.

Okay. And kind of overall yield, are you kind of thinking with the 80% visibility you have into this quarter that we'll see more kind of a typical seasonal progression?

Yes, typical seasonal progression, but you'll see stability in the yield. I don't expect to see any negative declines in yield year-over-year for Q2.

The next question comes from James McGarragle with RBC Capital Markets.

So I just had a question on CASM, came in really strong in Q1, especially impressive given how quickly the demand backdrop shifted in the quarter. But my question is, what can you do to ratchet down cost kind of if tariff uncertainties persist and demand continues to be weak. But then on the other side, if tariffs go away tomorrow and we have this huge ramp in transporter demand, how quickly and what can you do to respond to capture that demand?

Maybe you want to take the second half. I'll take the...

James, we have a lot of flexibility to reallocate capacity. We could look at domestic gauge moving back to the U.S. We could look at some sun market reallocation. There's all kinds of options. And as always, we've got multiple scenarios for demand postures going into the U.S. for Q3 and Q4. So we're ready for any scenario.

Yes. And on the CASM, I think we've given a lot of commentary on what we're driving here in terms of our cost reduction program. It's well detailed. The organization across the management team is driving different initiatives, and we'll continue to look and explore for more opportunities, and we'll adjust to the market as it evolves. So I would say that, by and large, we feel good about the cost reduction program we've already put in place. We're executing well. And I think that given the shift in kind of the environment, we've reacted well as well on the variable side and making sure we take out that cost. We'll stay agile. So I'll just leave it at that.

And then on the weakness in transborder, I guess, given how quickly things change, I'm sure trying to allocate that capacity away from transborder in a totally optimal way was probably pretty hard. But to the extent transborder remains weak, how much would you expect to be able to improve on some of these challenges as we look into 2026? And what specifically might you look at, given you'll have an extra year to potentially adjust your network?

Yes. So James, it's exactly what we said. We've got a very diversified network. We've got multiple options to redeploy capacity. That's why we made that announcement about Latin America in Q4. That's why we made that decision to start Montreal-Edinburgh, which was otherwise allocated to the U.S. And you're right, to your comment in Q1, it was -- the demand drop on the U.S. was a bit sudden. Hard for us to recoup with such small lead times in months like March and April. But as we go forward, we'll mature into the capacity that we reallocated elsewhere. And for '26 right now, it's a bit too early to speculate exactly what the market will look like.

The next question comes from Matthew Lee with Canaccord.

Most of my questions have been answered, but maybe one on share count. I know you've talked about targeting below 300 million shares. But my math suggests that the $500 million SIB sort of gets you there already. Is that a signal that share buybacks won't really be a priority over the medium term? Or should we still be expecting an NCIB every year just given the cash flow profile?

You're just too fast for us, that's all. But I think that your math is good. I think by and large, if you take out the convertible that we signaled already we're going to pay down, you get to about 335 million shares and the $500 million SIB will do what it does. But to your point, probably get to in a range somewhere between [ 300 and 310 ] depending on size and subscription and pricing and all those things. We put aside in our 5-year -- sorry, in our 3-year plan, we put aside about $2 billion of share buybacks. If you take the $800 million that we deployed between Q4 and Q1, you add the $500 million here, that's $1.3 billion, there's still room, right? And we still intend on generating cash flow at the rate that we had expected. We still intend on managing liquidity and debt and the balance sheet with a good strength. So this is an opportunity here for us to do something that we think supports the stock. And frankly, we think it's undervalued. And as a result, it's an opportunistic deployment. It doesn't change the strategic plan. And as a result, we will stay focused on doing exactly what we said we'd do, keep a strong balance sheet, invest in the airline, grow it appropriately, grow earnings and then make sure that we can distribute cash to shareholders.

That's helpful. And then maybe on fuel, lots of volatility in prices right now. Just given some of the uncertainty around economic strength, does it maybe make sense to hedge a greater proportion of fuel costs, particularly given the fact that fuel costs are quite a bit below your annual expectations and guidance right now?

It is. I mean we did -- we took some positions for Q2, Q3. Our tendency here would be -- it's a natural hedge within the yield and fuel trade-off. So that's our base plan strategy. We do opportunistically take some positions when we do see volatility and attractive pricing. We came into the market, I think WTI was somewhere around $57 or $56. In fact, it was on the day that there was a pause on tariffs. So by 1:00, our buying stopped, and that what gives you a little bit of indication of why we have a little bit of a smaller coverage of 20%. We're probably looking for more. If opportunities come again, we will look at them. On the other hand, you don't want to go too far out or go beyond your booking coverage simply just not to be overexposed, should there be a further deterioration in pricing. There's a lot of better experts out there, but we do think that fuel or oil is kind of range bound, probably somewhere in the low to mid-60s or less. And we'll see as the year progresses. But really, right now, if there's opportunities, we may take a little bit more positioning for the summer. If not, we'll let the natural offset between fares and fuel take its course.

The next question comes from Chris Murray with ATB.

Just turning back to advanced ticket sales and maybe framing this around the commentary that the quarter was probably a little challenging to try to manage. But if we look forward, you've talked about yields being relatively flat in a number of places. And if we think about advanced ticket sales and what you're seeing, I guess the first question is, with capacity coming down, how should we be expecting load factors to trend? And is this really going to be a kind of a capacity load factor management story for the balance of the year? And I'm just wondering on the capacity side as well, if you can just maybe give us any color on how much of the capacity removal that you're taking out is due to either maintenance or fleet issues, like either delivery delays or some of the A220 issues, would be helpful.

Okay. So a lot of questions here. So firstly, on load factors, certainly, we're trying to manage load factors to be within the range that we had last year. That's our expectation for Q2 and Q3. We're also trying to manage the load factor a little bit on the transborder, given the state of demand. Now -- you had another question on advanced ticket sales?

Yes. And just thinking about how it all sort of ties together in terms of -- it feels like demand is reasonably okay, if it's still trending similar to what last year was.

Yes. So we're looking at ASM growth in Q2 of around 2%, 2.5% and similar for Q3. But in terms of load factor and capacity management, I think, we're going to be looking at load factors that are relatively stable year-over-year. And again, in a yield environment that's pretty flat.

Okay. No, that's helpful. Just one other question is just on Aeroplan. I think you made the comment that growth in Aeroplan has continued to outperform. Can you talk a little bit about some of the levers and what's maybe driving that and the impact on other revenues?

For sure. This is Mark Nasr. So 3 key levers come to mind. The ever-expanding base of partnerships that's both with existing partners where we develop new products together and new promotions. For example, in the quarter, we launched the ability to redeem your points in real time at all LCBO locations. So that drives engagement, it drives revenue, it drives profitability, number one. Number two, it's the ever-expanding base of members. So we continue to acquire new members, and we expect that to grow. We still think we have opportunities in penetration, as it relates to our flyers when compared to our competitive set. For example, we launched a free -- fast free WiFi recently. And in order to get that free WiFi, you have to be an Aeroplan member. So that's just an example of an opportunity to drive additional growth. And then finally, our analytics and marketing practice and the ability to provide more targeted and customized offers. We keep growing our capabilities in that space. We launched a new digital marketing stack, and it allows us to effectively -- much more effectively match our ever-growing membership base with the ever-expanding product portfolio to find the right product and the right offer for customers. So through all that, we see additional opportunity to continue to grow the program as well as margin expansion within what the program delivers internally.

The next question comes from Cameron Doerksen with National Bank Financial.

Just a question on the fleet. Obviously, there's been a number of aircraft that have been kind of pushed to the right here. But if I look at 2026, 35 aircrafts coming in is a pretty big chunk of planes. So I'm just wondering how you manage that kind of high level of deliveries coming in? And are you thinking about any potential opportunities to maybe defer some of those to later years just to kind of smooth out the delivery profile?

No. With 2026, I mean, from a wide-body point of view, we'll see maybe a couple of 787-10s, and we'll start seeing the first 321s, the XLRs, and we've been waiting for those for a long time, right? So I think that we'll see the cadence of them. But our expectation now is probably starting in Q1 '26, we start taking those aircraft in. There's a lot of 220s. I'd say that overall, we've been waiting for these aircraft. We're ready to deploy them, and we'll be bringing them in, in 2026, and we've planned for the CapEx. So we're managing the business around those parameters, and we have been for now probably a couple of years in anticipation. So I don't see anything else needing to be done really to enable the effective deployment of the aircraft. And we have opportunities here to retire some older aircraft as well.

Yes. And Cameron, it's Mike. Just to pile on. I mean, we've built the resources around to take these planes, and these planes are important to our new frontiers plan to our long-range plan. And so we're excited and the entire company is excited about taking these 4 fleet types in next year. And so we're ready to take them in and leverage them as we go forward.

Okay. No, that makes sense. Just -- a quick, I guess, follow-up just on the flight attendant negotiations. I mean, obviously, you've indicated that the productive negotiations. Just wondering if there's any, I guess, risk in your mind just from a time line perspective of potential disruption or risk of disruption impacting anything in the peak summer period.

It's Arielle. No, we've managed it. As you see, we obviously got through our pilot negotiations with no disruption, and we continue to be -- to have productive talks at the table and are anticipating the same sort of outcome.

The next question comes from Andrew Didora with Bank of America.

Nice results. I guess, Mark, thank you for all the color that you provided on the international stuff on the call today. I'm going to ask one more on it, though. Just curious what your percent -- in your international business, what percentage comes from maybe non-Canada point of sale? And if maybe you could speak to the trends that you're seeing in the booking behaviors of Canadians going abroad and non-Canadians in your network?

Yes, great question. So typically, Canadian point of sale at a macro level on international routes is typically about [ 60% to 65% ] of what we have. Then we have other points of sale like Europe, Asia, et cetera, then we've got a layer of sixth freedom traffic. What we see so far is point-of-sale Canada is very resilient, especially to Europe and Asia. We've highlighted and give color on markets like Japan, for example. The Mediterranean markets, leisure Europe continues to remain very favorable. Last year, point-of-sale Europe was a bit depressed given the Olympics, given the Euro soccer tournament. We're seeing a favorable rebound in Europeans coming back to Canada. And of course, we mentioned that U.S. sixth freedom traffic remains very, very robust and looks very favorable going into Q2, Q3.

Got it. And then just in terms of the transborder, do you have a breakdown of what that would be on a leisure versus corporate basis?

Yes, absolutely. The -- I mean, there's really 3 types of customers that we carry on the transborder. You have point of commencement Canada, point of commencement U.S. and obviously, we've got corporate traffic. So corporate traffic has remained stable, and point of commencement U.S. traffic to Canada has slight declines, but it's really point of commencement Canada to the U.S. where we see a decline in the low teens.

The next question comes from Daryl Young with Stifel.

Just one quick one for me. You've been giving increasing information around your sixth freedom growth. But are you able to just quantify where you're at in terms of a percentage of revenue for sixth freedom overall, including international and U.S. transborder?

I don't think we disclosed that number, but it's -- we're increasing -- we had a 12% increase in Q1, but we're looking at similar increases proportional into Q2 and Q3 and too early right now for Q4, but I think we're looking overall high single digits in terms of revenue.

This concludes the question-and-answer session. I'll turn the call to Valerie for closing remarks.

Once again, thank you very much for joining us this morning. Should you have any follow-up questions, please don't hesitate to contact us at Investor Relations. [Foreign Language] Have a nice day.

This concludes today's conference call. Thank you for joining. You may now disconnect.