Associated Capital Group, Inc. Price & Performance (AC)

Air remind you that today's comments and discussion 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 statements in Air Canada's fourth quarter and year end news release available on aircanada.com and on SEDAR plus And now, I'd like to turn the call over to Mike. Thank you. Thank you, Valerie, and good morning, Thank you for joining us a little bit earlier than usual. Last night, we reported strong fourth quarter year end results for 2024. This included a record full year revenue of $22,300,000,000 increasing 2% on a 5% increase in capacity. We finished the year with $3,600,000,000 of adjusted EBITDA which is just above our adjusted EBITDA guidance communicated on 12/17/2020. We also generated free cash flow of $1,300,000,000 and adjusted pre tax income of 1,400,000,000.0 in 2024. These results reflected a strong revenue environment Unit revenues turned positive in November and December, having recovered from declines in Q2 and Q3. We are committed on executing on our plan We have demonstrated our ability to adapt, and make the most of the opportunities that arise.

I'd like to call out four major [indiscernible] First, we successfully delivered these strong results by record in the face of the challenges during the year. For instance, the world experienced geopolitical disruption lagging impact from inflation, and lingering supply chain issues. Where necessary, we adjusted course and acted resourcefully, like shifting capacity to where it may more sense. Second, we secured a new agreement with our pilots about significant disruption to our operations. This also highlights the commitment of all stakeholders to and dedication to customers. Third, we saw pronounced operational improvements last year with an eight point gain on on time performance over 2023. Our drive for operational excellence remains continuously on display.

And finally, we fought back and canceled over 35,000,000 Air, program that we announced in November. I'm immensely proud of these results which would not have been achieved without everyone at Air Canada Our 40,000 employees showed their dedication and professionalism by safely transporting transporting more than 47,000,000 passengers. Over the course of the year and I commend them for their commitment and their hard work. I also thank our customers for their loyalty to Air Canada. We strive every day to provide them industry leading products and services. We are already the leading premium carrier in Canada. And we will continue to assert ourselves as a global champion. We are fully focused on executing our DG plan. That includes managing through any uncertainty, pivoting where needed as we pursue our ambitious goals. At our recent Investor Day, we shared key targets we set for 2028. These include $30,000,000,000 in operating revenues, at least a 17% adjusted EBITDA margin, and approximately 5% free cash flow margin. We continue to be disciplined with our decisions as well as agile. And Mark and John will provide more commentary on the year ahead. We have all the necessary tools and attributes to achieve our goals.

And we look forward to sharing more updates. Thank you. Mark, over to you. Thanks, Marcie, Mike, and good morning, Bonjour.

Thanks to all our employees for their contribution to our quarterly and year end results. I'll begin with a quick overview of Q4. Operating revenues were more than $5,400,000,000 up 4% year over year with growth in all revenue categories. The year ended with an improved revenue environment as PRASM turned positive in November and December driven by our transborder and Atlantic services. It is worth noting that Q4 twenty twenty four produced record fourth quarter revenue for Arcana, despite the impact two weeks of October, from the labor uncertainty a month earlier. Looking to the full year, passenger revenues were nearly $20,000,000,000 a 2% increase year over year with significant growth coming from our expansion in the Pacific most notably in Japan, Korea and Hong Kong. Pacific traffic grew 25% year over year on a yield decline of 6% which was within our expectations. Supply and demand balance in the region and a normalized environment led to pricing North America also performed well This is remarkable given the competitive environment in the region. We managed capacity diligently by adding 28% more capacity than Pacific, and reducing our Atlantic flying in 2024. Our network diversity is a key strength of the business and in true form, we will continue making dynamic necessary and timely adjustments on our network based on market conditions.

A combination of factors impacted the Firstly, we believe that competitive capacity grew at a faster pace than the market could absorb in the peak summer period And secondly, that the geopolitical instability in large sporting events during the European summer impacted traffic and yields in the region.

However, as evidenced by our Q4 numbers, the pricing environment improved in the second half of the year. Demand for European travel has extended into the spring and fall shoulder seasons effectively stretching the traditional seasonality of the Atlantic market The stability in exchange rate versus the year has also been positive for customers to Europe Let's now turn to our six freedoms strategy. It continues to yield robust results with revenues growing 12% year over year. Six Freedom traffic is a core pillar of our commercial strategy Air results signify the geographic advantage of our hubs and reinforce our corresponding long term investments on these flows. Our well established premium product yielded great results increasing 5% from 2023 and reaching 29% of total passenger revenue. On cargo, Q4 revenues increased 20% year over year as market dynamics progressed through 2024. More importantly, this was driven by increased volumes and improved yields. Very encouraged by these results. And on a full year basis, Pargo performed solidly recording a 7% increase in revenues to nearly $1,000,000,000 in 2024. We're very pleased with the progress of our freighter operations. Air Canada Vacation celebrated its fiftieth anniversary this week and continued to deliver strong performance with annual revenue exceeding those 2024.

As we begin 2025, we acknowledge that there are external pressures, such as currency and uncertainty on other fronts. It is still premature to discuss the potential impact, if any, of actual or potential regulatory tariffs or possible retaliations. We're diligently and continuously monitoring customer behavior and market dynamics These shift in the future we have ample flexibility to respond by moving capacity around as we've always done. For now, here's what we're seeing. The revenue environment experienced in Q4 twenty twenty four continuing into 2025. January booking trends have aligned with our expectations despite some uncertainty. We see encouraging booking trends and yield signals for Q2 and into Q3. Keep in mind the shift of Easter from March 2024 to April 2025 naturally shifts revenues to Q2 which will translate into less relevant compares year over year Q1.

We are proactive acting in specific markets like certain U. S. Leisure destinations such as Florida, Vegas and Arizona. Air As such, we Air reducing our capacity exposure to these markets from March And we continue to see encouraging signals around fixed stream demand and And overall, a meaningful rebound in our Transatlantic market for the spring and summer seasons. Demand for sun markets continues to surpass our expectations and the booking curve has shifted to a more close in environment. As we see recovery on the Atlantic, we have and will continue to look at some capacity shifts away from Asia where overall market capacity is up substantially. The short term effects from specific yield normalization are expected for the next few quarters. We have witnessed and continue to anticipate a more disciplined and predictable competitive environment in our core markets. Lastly, our revenue management tactics such as brand Air fair adjustments are delivering better than expected results. As we stated at Investor Day, we believe Eriana has one of the strongest foundations in our history. Our hubs are geographically well positioned have an efficient fleet with Mobile Reach, enabling Six Freedom growth and diversifying our customer base and points of sale.

Canada's demographic growth combined with decades of past present and future immigration is expected to translate into higher growth for international demand. Our diverse product range including our well established premium offerings deals to a broad range of customers globally. We are a disciplined and nimble team proven ability to execute and deliver results. Let's see. Thank you, John, and over to you. Thanks, Mark. Good morning, everyone. Bonjourratos. A special thanks to our employees for their incredible energy in helping us deliver our results for Q4 and the full year. It was truly a great team effort. [indiscernible] We achieved a record adjusted EBITDA of $96,000,000 in the fourth quarter with a margin of 12.9% representing a year over year increase of $175,000,000 and almost three percentage points respectively. This result was largely driven by the strong revenue and favorable fuel environment at the end of the year.

You heard it from Mark. We're encouraged by the early positive signals for our summer schedule. In Q4, operating expenses increased 11%. This largely reflects the one time non cash past service pension charge of $490,000,000 we disclosed last quarter in relation to our new pilot collective agreement This is reflected in the salaries, wages and benefits line. Adjusting out this non recurring charge, Q4 expenses were higher by 1% year over year. Turning to the full year. We generated an adjusted EBITDA of $3,600,000,000 which was slightly ahead of our guidance and mostly fueled by the solid revenue performance at the end of the year. Adjusted EBITDA margin surpassed 16% in 2024. Despite a year over year decline of $296,000,000 in adjusted EBITDA, and a two percentage point margin compression from twenty twenty three twenty twenty four was a solid year put up against tough compares Air exceptional rebound 2023. Our operating expenses grew 7% Dollars, wages and benefits were up 11% year over year. Excluding the one time pension charge, mentioned earlier. Fuel prices were a tailwind averaging $1.01 per liter in 2024 versus $1.12 in 2023. ASMs per employee increased 1.4% in 2024 year over year.

This illustrates early stage productivity gains in our business. Turning to unit cost. Adjusted CASM increased 2.3% year over year in line with our full year expectations.

We remain focused on managing controllable costs and delivering productivity gains as we grow. 2024 produced another solid year of free cash [indiscernible] We delivered $3,900,000,000 in cash from operations and $1,300,000,000 in free cash flow. Effectively producing $1 of cash for every dollar of adjusted net income.

As to our planned fleet, you may refer to our disclosure for details. Note that the seven eighty seven-10s are shifting to the right and we have revised our Boeing seven thirty seven MAX leases and now expect a total of seven aircraft to enter service in 2025. During 2024, we executed our capital allocation priorities exactly as planned. We continue to improve our balance sheet in down approximately $2,000,000,000 in debt We refinanced and repriced our Term Loan B and we deployed $473,000,000 of excess liquidity purchased more than 20,000,000 shares for cancellation. And earlier this week, completed the full repurchase of shares allowable under the NCIB we announced on our Q3 call in November 2024. We expect to further reduce our fully diluted share count by cash settling our outstanding convertible notes that mature in July 2025. As highlighted at our recent Investor Day, we aim to reduce our diluted outstanding share count from $376,000,000 at the end of the third quarter of twenty twenty four to $300,000,000 or less by 2028. Our objectives are clear. Invest in the airline to fund our future, to allow ourselves to grow revenues and expand margins. To protect our balance sheet strains from by focusing on free cash flow generation, to maintain net leverage below two turns and deploy excess liquidity to create shareholder value.

Today, we maintain the 2025 guidance we provided at Investor Day.

We will continue to monitor the economic environment including the potential impact of Air, if any.

I remind you that our current guidance does not assume any such impact direct.

Or indirect.

As a matter of discipline, we rely on a robust fact based process to make our decisions. We have a focus on what we know and control. While being mindful of external forces that may affect our plan.

So here's what we know from the current environment and the outcome of our process. First, as Mark said, the revenue environment experienced in Q4 twenty twenty four is continuing into 2025. Demand remains stable.

And we see positive booking trends and yield signals for Q2 into Q3.

Second, the fuel environment favorable and is holding in a relatively stable range in U. S. Dollars. We also have a well established disciplined and agile fuel procurement process multiple and flexible sources across the globe allowing us to diversify supply. Third, we have a well established foreign exchange hedging program. In which we hedge approximately 70% of our U. S. Dollar cash flow requirements on an eighteen month rolling basis. As at year end, we had an outstanding FX derivatives settling in 2025 and 2026, to purchase at maturity US6.9 billion dollars at a weighted average rate of $1.35 per U. S. Dollar.

While our adjusted EBITDA is sensitive to currency fluctuations, the cash flow hedging program, does protect against free cash flow volatility. We are disciplined and agile. We have fleet flexibility a strong and resilient balance sheet, and a responsible risk profile. We are prepared to adapt promptly to tackling any potential changes or challenge We remain committed to our plan. Thank you. And with that, over to you Mike. Great. Thank you, John. The clear message of our fourth quarter and full year results is that Air Canada, pursuing its strategic plan and is advancing on its commitments. Our many attributes for computing effectively are key to our plan and give us the agility course correct, would need a These include our strong balance sheet, global network, modern fleet and digital capabilities, strong partnerships and leading products and services especially in premium, as well as Aeroplan, Canada's best travel loyalty program. In fact, our award winning loyalty program had another record year reaching new highs in active members, reduction volumes and third party gross billings. Which rose 10% to $1800000000.0.20 24. We're also pleased that Aeroplan continues building upon industry leading roster of partners. Launch of Manulife, and expanded Air partnership in 2024.

We have other incredible attributes as well. These include our decisive management team and highly motivated employees. Who are bound together by a strong corporate culture, and their outstanding commitment to execution and dedication to customer service excellence. We are in a great position to build on last year's remarkable success. Our disciplined and dedicated team is well prepared to effectively manage any uncertainty and external pressures. The demand environment continues to be favorable and we are poised to capitalize on opportunities. We'll continue to adapt and thrive in an ever changing aviation industry, Thank you. Masay.

And we will now be pleased to take your questions.

Valerie? Thank you, Mike. Thank you very much for joining us on our Q4 and full year results.

Call this morning. Thank you. Your first question comes from the line of Kevin Chiang with CIBC. Please go ahead.

Hi, thanks. Good morning and thanks for taking my question. Maybe I can just dig into some of the demand comments you made and maybe specifically on the booking curve as we kind of look out maybe into Q2, Q3, I think you mentioned the yield environment looks good. But maybe just how the booking curve is trending relative to maybe prior years. And you did mention sounds like you're adjusting some of the capacity into U. S. Leisure markets. Is that a function of some shift in in Canadian consumer behavior flying into The U. S. Given all that's happened with Air? And is that capacity being, I guess, put into other markets you're seeing better growth? Air you maybe just proactively adjusting that for other reasons? Any color there would be helpful.

Terry, good morning, Kevin Air.

For Q2, the booking outlook and the booking curve looks pretty similar to last year. One notable difference is fact that Easter shifted from March to April this year, so that changes the dynamic a little bit. Favorable for Q2. We are proactively looking at capacity to U. S. Leisure destinations. And we feel that we've got enough opportunity elsewhere in the network to redeploy that capacity. There might be some opportunity in domestic and we see some opportunity in some leisure markets as well. So if we do see some softness on The U. S. Side because we're not seeing it close in just yet, we can offset it with some ripple changes.

Okay. That's helpful. And maybe just in terms of, I mean, just in the second how does that change your revenue management system whether it's point of sale out of The U. S. Air or six Freedom Traffic? Are you seeing more dollar U. S. Dollar revenue flowing through your revenue line? Is that something proactively you're doing just to adjust to the FX environment?

No, absolutely. Our revenue management systems are very sophisticated and we said in the Investor Day we can change our revenue management algorithms to be much more open open to U. S. Inbound traffic and as well U. S. Sixth Street Air traffic, which going into Q2 and Q3 look very favorable So certainly Air area of opportunity for us Perfect. Thank you.

Your next question comes from the line Savi Syth with Raymond James. Please go ahead. Savi, you're on mute. Thank you. Good morning. Just can I ask about like what you're seeing on the corporate side? I know you did you had a considerable effort on expanding your SME accounts and then you have all this kind of geopolitical noise and curious what you've seen in the fourth quarter Air then what you're seeing here in the first quarter in terms of corporate travel demand and how that's progressing? [indiscernible] question. For Q4, what we did witness was a stronger than expected bounce back in corporate travel. In some cases, it was almost double digits better year over year. Like we said, largely experienced in the transborder sector. And going into Q1, we see that continuing. And in terms of our SME, SMB program, we're above the targets right now internally. That's favorable.

Helpful. Thank you. And if I might, [indiscernible] Seasonality question, just to follow-up on the ATL, you're kind of forward ticket sales historically there's been a pretty big shift kind of move up from the third quarter to fourth quarter, but last year and this year it looks like a very pretty flat move. And I was just wondering if there's anything different that's driving that seasonality change in your [indiscernible] Q4 twenty four or Q4 twenty five?

Q4 twenty twenty four.

Just the way the line item moved in the balance sheet. Is quite different than it has in the past years. It's kind of the forward sale of [indiscernible] line item.

We can take a note and come back, yes. Maybe you can speak to Valerie on the line. I'm not sure I we'll pick up the question, but we can I'll follow-up with you, Sami.

Sounds good. Thank you. Your next question comes from the line of Konark Gupta with Scotiabank. Please go ahead.

Thanks Sam and good morning everyone.

I just want to follow-up just on the assumptions you guys have for 2025. Obviously, clearly, the Canadian dollar had weakened and then it's kind of rebounding. So maybe it kind of matches your expectation or assumption. But on the fuel side, I'm just like curious, I think you talked about diversifying supply and I think you have you are hedging fuel as well. Just want to kind of pick your brain in terms of how should we think about the fuel price volatility this year, right? Clearly, the fuel price in the market that we see is running higher than your assumption So how do you do you find confidence in keeping that assumption? [indiscernible] Spot's running right around the mid-90s on on fuel. So I mean, ex FX, right? So FX is its own element, but on a U. S. Dollar basis, Air kind of hovering in the mid-90s Rx expectation is that it's moved around. The front end of the year was a little bit harder So January Air a bit heavy in terms of fuel price, but it's settled in now.

I think WTI is somewhere around $71 $72 Air that's kind of consistent with the way we see the year.

The forward curve would suggest it's going to come down a little further. We really haven't reflected that on the long term So our 95 volts for the year. So I think we're reflecting more or less the current environment And as I said, FX apart and on the FX side, we'll watch this, it's volatile. Right now, we have a 140 expectations trading around 142 Air change. We'll see how this all plays out, but we have some ability within the range as well to absorb some of that.

Okay. And just to be clear, John, there's no active hedging in place for Q1?

Yes. No, so I didn't comment on that. So thank you. So no, we hedged through the back end of last year. We did so kind of middle of the year last year and we have nothing in place Okay, perfect. Thanks. And if I can follow-up on CapEx. So if I look at your total projected expenditure table in the MD and A, It's showing 3.5 ish billion dollars CapEx for 2025 Air then ramps up to $4,300,000,000 and $4,900,000,000 in the outer years. If you can remind us, I think at the Investor Day, I think you were looking at some $3,000,000,000 of sale leaseback transactions. So is this projected CapEx stable, not reflective of those sale leasebacks? And how should we think about the actual net CapEx number?

Yes, yes, good question. So a couple of things just as a kind of high level points here. We had about $18,000,000,000 as we mentioned between I think '28 Air CapEx remains largely intact as a few pieces move around We also have an FX impact in the current reporting period and FX closed the year a little bit high and we use that current balance sheet rate project all of CapEx. So So hopefully in the long term that will be a little bit of tailwind as hopefully affects stabilizes in the longer period. But on the so the numbers are kind of in is bound into that plan that we talked about. The sales leasebacks are not put into the projected table when they're contract then we may look at that differently. But at this point in time, you have the gross CapEx and so to your point, that will offer some flex And it will also bring back some balance to our fleet in terms of leased assets, which we like because it provides flexibility for us to manage through agile with some agility through Air, orders, volatility.

Okay. Thanks for the answers. Thank you.

Your next Your next question comes from the line of Matthew Lee with Canaccord Genuity. Please go ahead.

Hi. Thanks for taking my question. Just in terms of capital priorities, I know you talked about taking out the convert in cash, but are there other ways you might consider returning capital to shareholders, whether that's dividend, Yes. So I mean, I'll take both on here. The first thing is, I think we just completed a program, some 800,000,000 deployed on share buybacks over that period. I think it's a great first step and very much aligned with what we had planned planned to do as we started off 2024. We do have an opportunity here with the convertible, so we'll take advantage of that. That's another around CAD400 million. That gets deployed. So it's another substantial amount [indiscernible] antidilutive actions. I guess in the kind of mid term, so as we look through the back end of 2025, early to say now, but our plan was clear when we presented to you in December that we expect to continually look for opportunities to return capital to shareholders Air we will. So we'll have an opportunity at the end of this year from a calendar point of view at the twelve month expiration of November of twenty five to look at another NCIB.

And at this point in time, that would be our base assumption Air base plan. So Air is another set of actions. Beyond that and things like dividend and so on, nothing is ruled out, but I don't think that that's the plan for the midterm. We're going to to do what we wanted to do on the share count. Make sure that we invest in the Air, so we can get the growth and the margin expansion that we're looking for. And then obviously, when we're generating cash flow, we'll have a lot of optionality.

That's helpful. But there's no way to do a buyback more quickly than the one year mark in November this year?

Yes, nothing practical. I mean, We don't have a plan to do anything special like that at this point in time. We'll take advantage of what's coming up here in the first half on the other convertible.

Air right. Sounds good. Thanks. Thank you.

Your next question comes from the line of Jamie Baker with JPMorgan. Please go ahead. Hey, good morning, everybody. So just following up on some of John's prepared remarks.

In a couple of months. It's Investor Day and look like everybody else on the call, I'm just trying to square how some of your full year assumptions may have changed internally you addressed fuel, Air the FX issue, tariffs and look, the market is obviously well aware of all this. My question is whether you can point to any specific offsetting improvements that have taken place that we might have missed, maybe some even more incremental corporate demand resilience above and beyond what you spoke to Savi about just now, anything like that? Any specific positives in the last two months that you can make us aware of because it just it seems like the year is off to a rocky start.

Yes. I wouldn't see it after a rocky star. I'd say that by and large, yes, a lot of of course, a lot of drama and so all those things matter. But we in simple terms, I think we're seeing solid demand and solid yield, particularly into Q2. And early signals for Q3. And I think that those things are giving us a relative amount of confidence on holding our guide for the year. So that all things considered, I think we feel relatively good about where we stand today and we can't foresee the things that we won't speculate on tariffs and other things. All mentioned macroeconomically, but that's our view. And Mark, do you want to add anything here? But No, Jamie, just maybe the rebound on the Atlantic performance for Q2, Q3 might be a bit more favorable than initially anticipated. Yield environment Air It's pretty robust. And of course, our focus on as much extreme traffic as possible.

Okay, very helpful. And then just quickly on the share count. I was surprised that the year end share count was not a little bit lower.

Could just be that I goofed on my internal calculations. But don't know, is there any stock based compensation that might have sort of figured into the final count? And apologies in advance if I missed this in the notes.

No, I think maybe it's the weighted average. You look at and that we have had a very little effect because you're looking at like eleven months that would have been pretty static and then you would have had one month. So look at the same thing. I think it's a weighted average impact that really is bringing it off. That should be better obviously in 2025 Air a lot of those share for bought like $20,000,000 versus the $50,000,000 Air the first quarter here. So that should get better quickly.

Okay, perfect. Thank you, gentlemen.

Thank you. Your next question comes from the line of Steven Trent with Citi.

Please go ahead.

Thank you everybody and and appreciate you taking my questions. Just wanted to follow-up a little bit on the jet fuel carriers outlook. I think if I heard you correctly, in terms of your FX exposure You're hedging 70% of your FX exposure eighteen months forward. So am I correct in thinking that this exposure is at least somewhat giving you some protection on your refueling expenses, outside of Canada. I wasn't sure if chasing my tail on this one, but just wanted to understand a bit more. Thank you. Yes. Thanks for the question, Steven.

So I'll maybe take a minute just to give maybe some simple color on the hedging program. We look out eighteen months. We look for the net We have a net U. S. Outflow obviously. We do have some inflows, but obviously fuel is U. S. Dollar denominated, a lot of maintenance as well. And some station costs in The U. S. So we look at the net net basis and for every penny that's worth about it's about a $4,000,000,000 ounce net. So it's about $40,000,000 per penny of movement on FX. The way to think about this is that the hedging program really is an economic hedge The cost in Canadian dollars does on the cost line, particularly, for example, if you look at adjusted CASM, will absorb and will have to reflect that weaker Canadian dollar. So we take some pain on the P and L on an adjusted basis because the gains on our derivatives will fall below the line. So they get adjusted out. Now what I need you to understand most important is that the cash the economic hedges, the cash flow hedges do protect cash flows. As I settle into a market at $1.42 or $41 or $43 on hedges that are, call it, dollars 1.38 Air something on average, we are going to get the cash flow benefit of that.

And that does protect the free cash flow for the business. And in the short to medium term, of course, right? It's an eighteen month program. If you look through the next three months, we're probably 90% plus hedged. As you go further out on the curve, it comes down and the overall is 70. As you go out a year, 1.5, you're getting below that 70 average. But The point here is that it protects the business, it protects cash flows, it allows us time to adjust, make decisions But at the same time, you will see it in the earnings numbers, especially on the adjusted side. And so just pay attention to that.

Appreciate that, John. That's super helpful. And for my follow-up, just really quickly sort of when we think about the unit revenue environment for the first quarter, Air high level view on what that looks like if you sort of normalize the year on year trend for the Easter calendar shift and for twenty nine days last February versus twenty eight this year? Thank you. Hi, Stephen. This is Mark. Just on the unit revenue side, I think you should expect a positive unit revenue Q1. But again, the calendarization of Q1 this year versus last year makes the Air a little bit challenging. But as we go into Q2, Q3, that's where I think you should expect a bit more opportunity.

Okay. Appreciate that. Thank you.

Your next question comes from the line of Chris Murray with ATB Capital Markets. Please go ahead.

Yes. Thanks guys. Good morning. Just maybe thinking about other parts of the operating revenue, cargo and other. So a couple of a couple of questions. One, we have seen a lot of movement around trade flows and tariffs. Just any commentary you guys may have on how to think about the cargo business even near term or as we go into 2025? And then you did mention that you were pulling down some leisure capacity into like The U. S. South destinations.

Is that going to be redeployed into other vacations destinations? Or should we be thinking that vacations may be slowing as we go through the year?

Hi, Chris. Just a firstly on the cargo side, as you know 2024 was a banner year for non COVID year.

And as we go into twenty twenty five Q1, we see that continuing.

The cargo market is so close in that it's tough to say exactly what Q2, Q3 will look like. But observing any potential shifts in trade or geography and right now time, there's nothing to comment on. And on the capacity question, we do have a redeployment opportunity if required in some markets where we see a lot of demand interest right now and the booking curve is much more close in than we have seen in the last couple of years. There could be an opportunity for us in some domestic Canadian leisure markets as well to move some geographies around.

Okay. I'll leave that one alone.

And then just maybe turning to operating expenses. I guess Air a couple pieces of this. One, we talked a little bit about you Air starting to see some improvement in some of the metrics. Now that the filing agreement can pilot agreement is in place, how How are you finding some of the costs buckets moving around? And are you seeing the advantages you thought you would get that you would come later at the Investor Day?

Yes. I think we had some productivity already demonstrated in 2024. And I think we're going to continue to gain that productivity as we as we grow some scale in the Air, in the next couple of years. I mean, I think 2025, we went through some of this in detail, but we're bringing a lot of narrow body and that's going to help our 6FREETIM business as well as just bring back some capacity. But you get more more cost effective scale when you bring in the larger aircraft so, 321s and especially the 787s. That will be more of a 26, 27 ramp. The technology continues to we continue to progress well on deploying technology. Through the business. And we're making investments that we feel very confident about with respect to giving our employees tools and capability to work more effectively. So we feel good about our ability to generate both productivity and unit cost [indiscernible] 2025 is one of the years where we're going to kind of still have some pressure, maybe a couple of we have the labor agreement to complete and we have impacts of just the year over year on the pilot agreement that will kind of be fully affected this year.

Beyond that, maintenance has always been a bit of a tough environment and continues to be that right now in the long term as we get a modern fleet to expect that to be alleviated a little bit as well. So we're managing all parts of the business and I think we remain focused on keeping costs in check. And that will certainly be an important part of our margin expansion 25% Air going to be a bit of compression, but feel good about 26%, 27 Your next question comes from the line of Andrew Diodora with Bank of America. Please go ahead.

Hey, good morning, everyone. So I understand the current environment is fluid But if we were to see you continue to cut more capacity maybe John, can you give us some guideposts on how we should think about the CASM impact from those cuts? I'd say, is is one point of capacity one point of CASM Air is the relationship different? Just curious on how to think about that.

Well, it's a bit of tough math do on the phone with you right now. I probably have done it enough times, but I won't give you a translation here and now. [indiscernible] We're going to stay agile and we also keep an eye on both, right? I mean, we can manage both And we have shown that last year is a good example of that. We took some capacity out and we were very proactive in how we manage costs and we delivered on all of our expectations. And I'd say [indiscernible] So you can't foresee all environment. So I'm not going to give you a blank guarantee across the board. What I am going to tell you is that we put 14.25% to 14.5% Air sure if you take out some ASMs going to get a little bit of pressure. At the same time, we're going to stay very focused on on pushing the agility in the business and making responsible decisions so that we can keep costs well managed. And we can talk about some kind of conversion maybe. I'll give some thoughts and we'll talk offline on that.

Okay, great.

I'll follow-up offline on that one. And then just [indiscernible] philosophically on the buyback. I certainly know that team's view on the valuation of the stock, but just curious if there was any management conversation about maybe not buying the max amount in any given day, just just given how volatile the macro environment was to start start the year? Just curious on your thoughts Air.

It's done, right? So I'm not going to speculate on what I mean, we did what we felt was the right thing to do. And I think that in the long term, I feel that's going to paid off being a smart decision. Discipline matters and second guessing, I guess, is is easy. But this is volatility that will work its way through the system. I think the bigger picture is that we feel very confident about creating value for shareholders Air that includes deploying capital when it's available and and making sure that we grow the revenue and the earnings the rest will take care of itself.

Your next question comes from the line of Cameron Dort with National Bank Financial. Please go ahead.

Yes, thanks. Good morning. Just maybe to start just a clarification just around, I guess, your comments around pulling back some capacity on some of The U. S. Leisure destinations in March. I'm just wondering if that is mean that is kind of in anticipation of weaker demand Air is that a reaction to anything you're seeing like in the very near term here as a result of people booking away from U. S. For whatever reasons. I'm just trying to understand if that's an anticipatory thing or is that something Air reaction to what you're seeing in the market? Hi Cameron, it's Mark.

It is we are anticipating proactively that there could be a slowdown. We don't see it right now. In our near term bookings in The U. S, we don't see any major slowdown or anything substantial that would change our view of the market. That being said, if we can derisk this a little bit, and move and be a bit proactive and move capacity into other sectors, we see strength. I think that's the right move right now in this context.

Okay. That's great. Air maybe second question just on, I guess, aircraft availability. I know there's obviously been these engine related issues that Air aircraft. Just wondering in the last few months, if anything has improved or gotten worse on that front? Just your thoughts on what we should expect for the year on aircraft availability?

Yes.

I mean, particularly eight to twenty was the biggest challenge, I would say, with respect to aircraft availability again. We're working closely with Pratt Air we speak very often. We track [indiscernible] And we believe we're going to see some improvement through the year and we expect summer to be a better summer than it was last year for sure. We've made a couple of investments as well on spare engines across the fleet Air we thought we had some some exposure just to try to improve the availability of Air. So we're trying to do some self help as well. But it's a combination of things. One, our maintenance organization Air Air tracks us very tightly. We do have senior level meetings with Pratt on a regular basis to make sure that all parts of that system are supporting us directly. Then we did deploy a little bit of capital to make sure that we help ourselves as well. So So Air no promises, but I feel pretty good about how we're approaching it. I mean, '25, I think should be better in the summer than it was.

Okay. That sounds good. Appreciate the time.

Thanks.

Your next question comes from the line of Tom Fitzgerald with TD Cowen.

Please go ahead.

Air, everyone. Thanks for the time. How would you characterize the domestic competitive capacity environment right now? Do you view it as mainly rational Air are there any pockets of oversupply?

Hi, Tom. Interesting question. In the near term, as we look into March and April, it is our view that the domestic market is overcapacity. We see some of our competitors adding capacity levels that might be beyond what the market can absorb short term. But as we go into later Q2 into Q3, right now, it looks like a pretty balanced market and there Air be an opportunity in that market especially if we move some capacity from U. S. Leisure [indiscernible] there's no real I find the supply demand imbalance to be a little bit less optimal.

Okay. Thanks. That's really helpful color. And then did I mean, if I missed this on one of your early responses, but did you confirm if if your TASM ex guidance includes an assumption for a flight in the deal? [indiscernible] Similar to what we did last year, right? We make an assumption and we've embedded that in our full year earnings guide as well as by default the CASM guide. So it's included as we did last year.

Okay. Thank you so much. That's really helpful. Appreciate the time.

Thank you.

Your next question comes from the line of Greg Conrad with Jefferies. Please go ahead.

Good morning.

Maybe just to follow-up. I mean, you mentioned some of the capacity redeployment with a potential redeployment to the Canadian leisure Can you maybe just talk a little bit more about what you're seeing competitively and some of the opportunities in the Canadian market?

Sure. So in the short term, as I just answered the question, I think in the domestic Canadian market, for late Q1, early Q2, we see substantial market capacity increase, which is maybe above what the market can absorb short term. But as we go into later Q2 and early Q3, the supply demand balance seems to be a bit more optimal. And we think there's an opportunity in some Canadian leisure markets to move a little bit of capacity. And as well, the sun market looks very strong. All the way through the booking curve and there could be an opportunity as well for us to move a little bit of capacity there. Again, these are tweaks to our potential offset of The U. S. Leisure situation?

And then maybe just given all the pieces you kind of talked about corporate and some of different pieces, I know you had pretty good premium growth in 2024. Just given some of the moving pieces, I mean, how are you thinking about premium in 2025 Air maybe how that's embedded in the numbers?

No, we think it continues to be strong. I think we have a good opportunity to further capitalize on that. And as well, not only with the premium segment, but as well with some of our brand and Air initiatives to drive and manufacture some revenue here. So that combination, I think, gives us some tailwinds.

Thank you.

And that concludes our question and answer session. I will now turn the conference back over to Valerie for closing comments.

Thank you, Christa. Thank you you once again for joining us on our call this morning. Should you have any follow-up questions, don't hesitate to contact us at Investor Relations.

Thank you and have a great day.