caution regarding forward-looking - air canada · june 1, 2015 $14.19 (+134%) june 7, 2013 $ 2.27...

Caution Regarding Forward-Looking Information / Non-GAAP Measures

Outlook provided in today’s presentations constitutes forward-looking information within the meaning of applicable securities laws, is based on a number of assumptions, including those discussed during today’s presentations, and is subject to a number of risks and uncertainties.

Today’s presentations also include references to non-GAAP measures, such as Adjusted Pre-Tax Income, EBITDA margins, Return on Invested Capital, Free Cash Flow and Leverage Ratio.

Please refer to this morning’s press release for additional information on non-GAAP measures and cautionary statements relating to forward-looking information, as well as major assumptions relating to our financial targets.

Our Transformation in Progress

Calin Rovinescu

President and Chief Executive Officer

5

Michael Rousseau

Deputy Chief Executive Officer and Chief Financial Officer

6

Lucie Guillemette

Executive Vice President and Chief Commercial Officer

7

Craig Landry

Executive Vice President, Operations

8

Arielle Meloul-Weschler

Senior Vice President, People, Culture and Communications

9

Catherine Dyer

Senior Vice President and Chief Information Officer

10

Mark Galardo

Vice President, Network Planning

11

Mark Nasr

Vice President, Loyalty and eCommerce

Celebrating our 82nd year

Sustainable profitability

14

✓ Record financial results

✓ Record revenues

✓ Improved cost structure

✓ Strong balance sheet

✓ Improved financial leverage

✓ Lower risk profile

✓ Diversified network

✓ Record liquidity levels

✓ Pension plan surplus

✓ Stable long-term labour agreements

✓ Heading towards investment grade

Revenue generation and cost control

15

• Record revenues• Continued cost

discipline

2.362.69

2.973.39

4.18

5.73

0

1

2

3

4

5

6

7

2013 2014 2015 2016 2017 2018

Unrestricted Liquidity

Strengthened Balance Sheet and lowered Risk Profile

16

$ Billions

-5

-4

-3

-2

-1

0

1

2

$ Billions

Jan 1, 2019Jan 1, 2012

(4.2)

Pension Plan Surplus (Deficit)

2.4*

Effectively restructured pension plans, and now in a significant surplus position

*Based on preliminary estimates at Jan. 1, 2019

Capacity growth aimed at international markets

17

2013 2014 2015 2016 2017 2018

5-year Total

Capacity Growth

International

North America

82%

38%North AmericaCapacity Growth since 2013

International Capacity Growth since 2013

+62%

Share of total capacity

Culture change

18

Enhanced customer experience

19

Global champion

20

Privileged geography

Unrivalled access to the largest air travel market in the world

International traffic flows remain a cornerstone of our strategy

21

15%

International transit traffic

22

growth in 2018 over 2017

142%growth in 2018 over 2013

Fleet

29% CASM advantage over the Boeing 767

11% CASM advantage over the Airbus A320

12% CASM advantage over the Embraer E190

Boeing 787

Boeing 737 MAX

Airbus A220

Fleet renewal program

23

24

Carried nearly

30M customers serving 70 destinations on 5 continents

Since 2013

25

Exceptional growth

✓Domestic Canada holiday packages

✓New booking system

✓Customer-friendly ‘Hotel’ tab

25

Strong airline partnerships offering our customers more choice

• Founding member of Star Alliance

• Joint Ventures with United Airlines and the Lufthansa Group over the Atlantic, and Air China over the Pacific

• Codeshare and interline agreements with almost 90 airlines

26

12,38213,272

13,86814,667

16,252

18,065

2013 2014 2015 2016 2017 2018

Record operating revenue

27

+46%

+7.8%

CAGR

Strong revenue results driven by leveraging our competitive advantages

+11%(in millions $)

Record 50.9M passengers

Up 5.8% from 2017

28

Up 42% from 2013

Continued profitabilityEBITDAR and EBITDAR Margin

29

1,433 1,671

2,542 2,768 2,928 2,851

11.6

12.6

18.3 18.9 18.015.8

0

2

4

6

8

10

12

14

16

18

20

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

$ MillionsEBITDAR Margin %

EBITDAR (excluding special items) EBITDAR Margin (excluding special items)

20172016201520142013 2018

Consistent with previously forecasted

EBITDAR margin guidance

Cost Transformation Program

30

$220Msavings realized or identified in 2018

Historical Share Price*

Feb. 22,2019 $ 33.14Jan. 8, 2018 $ 23.88 (+39%)June 1, 2015 $ 14.19 (+134%)June 7, 2013 $ 2.27 (+1,360%)April 1, 2009 $ 0.78 (+4,149%)

Over $9 billion in shareholder value

created since Apr. 1, 2009

*Increases based on Feb. 22, 2019 closing share price of $33.14

Strategy increases value Share price up over 1,300% since 2013 and over 4,000% since April 1, 2009

31

Continued international growth

32

2018 NEW ROUTES

Air CanadaVancouver to Paris Vancouver to ZurichMontreal to Dublin Montreal to Tokyo-NaritaToronto to Shannon

Air Canada Rouge Montreal to Bucharest Montreal to Lisbon Toronto to Bucharest Toronto to Porto Toronto to Zagreb

Engaged workforce

33

New reservation system

• Improved customer service

• Enhanced operational efficiency

• Over $100M in annual incremental benefits

35

NEW: Industry-leading loyalty program 2020

• Leveraging technology and analytics for an enhanced customer experience

• Immediate value to Air Canada and to our customers

37

Data: the new currency of business

38

39

SIGNATURE SUITE Wi-Fi

A220

Investing in our products to improve the customer experience

Network optimization

40

Air Canada ExpressAmended CPA provides significant value

42

Competitive Culture

Arielle Meloul-Weschler

Senior Vice President, People, Culture and Communications

We’ve come a long way

Communication is key to success

Training and tools

46

Talent acquisition and attracting talent

Great results:

• Smarter hires

• Less turnover

• More efficient interviews

47

Future of work and reskilling

48

Innovative talent development

Emerging leaders program – Leading the AC Way

• On-line leadership training

• Mentoring

• Real-world project assignment

49

Diversity and Inclusion

50

Summary

53

We are:

✓ Communicating transparently

and continuing to nurture our

labour stability

✓ Investing in our people through

better tools, programs and training

✓ Staying ahead of the war for talent

✓ Ensuring that we continue to

“do good” in addition to “doing well”

We continue to transform and evolve, so do our people strategies.

Operations

Craig Landry

Executive Vice President, Operations

574,765FLIGHTS

83.3%LOAD FACTOR

217NUMBER OF

DESTINATIONS SERVED

WORLDWIDE

22NEW AIRCRAFT

INTEGRATED INTO FLEET

50.9MCUSTOMERS

+5.8% SINCE 2017

2018 operational results

56

Single day record

182,552customers carried (AUG. 20, 2018)

57

Elevating the customer experienceTechnology and innovation

Cost transformationOperations Excellence

Operations Excellence

58

Safety

• Engrained in our DNA

• Robust Safety Management System and Standard Operating Procedures

Operations Excellence – Transforming our fleet

Aircraft reconfigurations

A330 conversions• To be completed by summer 2020

Ongoing Wi-Fi installations and livery paint programs

Integrating new aircraft

Boeing 737 MAX• 18 aircraft to enter the fleet in 2019

A220• First aircraft to enter the fleet in 2019


✓ 150 cost savings initiatives identified in the operation

✓ $58M of cost savings realized

Focus for 2019

✓ Already identified $72M cost savings opportunities for 2019

60

Figures on the slide relate to initiatives in the operation only, in support of the overall target of $250M savings across the airline

“Super A” Checks

Reduced Boeing 767 hangar visits by 17% (300 trips) in 2018

61

Technology and innovation in the operation

New reservation system will

✓Simplify

✓Automate

✓ Improve the customer journey

62

Technology and innovation in the operationMobility in the operation

Introducing the potential of a truly connected operation

63

Technology and innovation

First airline in the world to install dual-heads up display on the Boeing 737 MAX

64

Elevating the customer experience

In-Flight Service:

Enhanced focus on quality and consistency of service delivery

65

Elevating the customer experience

Transiting customers:

• Our transit process is a competitive advantage

• Reduced number of steps for customers connecting at our hubs

• Expedited security and customs

• Most transiting customers are not required to collect their bags

66

Systems Operations Control

67

Summary

68

✓ Operations Excellence

✓ Cost transformation

✓ Technology and innovation

✓ Elevating the customer experience

How Air Canada Continues to Win

Lucie Guillemette

Executive Vice President and Chief Commercial Officer

CustomerServiceExcellence

How we will continue to winLeveraging our competitive advantages

71

STRONG POSITIONING OF PRIMARY HUBS

MODERN AND EFFICIENT FLEET

COMPREHENSIVE NETWORK AND SCHEDULE

WORLD CLASS PREMIUM PRODUCTS

FOUNDATIONAL RELATIONSHIPS

STRONG BRANDS

Competitive landscape

• Industry demand remains strong

• Competition is aspiring to win over premium customers

• ULCCs have entered the domestic marketplace

How we will continue to winNext stage in our transformation

73

BOEING 787, BOEING 737 MAX AIRBUS A220

IN-HOUSE LOYALTY PROGRAM

ENHANCED JOINT VENTURE AGREEMENTS

NEW RESERVATION SYSTEM

NEXT GENERATION REVENUE OPTIMIZATION

Strong, global brand

74

Seamless end-to-end travel experience

76

Airport product enhancements

77

Onboard product enhancements

• International economy meal refresh

• Evolving buy-on-board offering

• Enhanced family travel programs

Enhancing ourEconomy Classproduct

FIRST CANADIANCARRIER WITH

ABILITY TO STREAM

79

Cabin enhancements focused on product consistency

Passenger revenue growth and efficiencyTargeting profitable growth

1.90%

7.81% 9.39%

14.66% 11.61%

7.10%3.00%7.10%

5.22%

5.86%10.99%

11.17%

-2%

3%

8%

13%

18%

23%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2013 2014 2015 2016 2017 2018

Capacity G

row

th

Passen

ger

Reven

ue (

$ M

illio

n)

Passenger Revenue ASM Growth % Passenger Revenue Growth %

+47%

80

*Air Canada adopted accounting standard IFRS 15 - Revenue from Contracts with Customers effective January 1, 2018.Amounts for periods prior to 2017 have not been restated for the adoption of this new accounting standard.

Transforming revenue optimizationA key piece of our revenue growth

• Origin-destination controlsfar exceeded expectations

• Point of convergence between

– Data – Pricing

– Inventory – Distribution

• Opportunities to dynamically price seats and ancillaries

• Powered by advanced analytics

Enhanced economy fare offering

Key driver of new revenue-generating opportunities

Realized $250M in combined benefits* since implementing expanded range of economy fares

*Ancillary growth from unbundled brands and upsell to higher brands

Ancillary revenue

+13%2018 ancillary growth over 2017

Key strategic tool

Enables us to

• Compete effectively in leisure markets

• Swing capacity from sun markets in the winter to the transatlantic in the summer

• Effectively defend against ULCCs within Canada Undertaking initiatives to further

enhance the Rouge customer experience

• Digital Transformation

– Brand new web platform

– New hotel tab

• Diversified business model

– Increase in European and domestic Canada destinations

+59% Revenue growth since 2015

$803M 2018 Revenue

+13% YOY compared to 2017

Summary

✓ Comprehensive network and schedule

✓ Strong global brand

✓ Modern and efficient fleet

✓ Revenue optimization processes and capabilities

✓ World class premium products

✓ Strong foundational relationships: Star Alliance and joint ventures

✓ Industry-leading in-house loyalty program

87

Positioned well to win now and into the future

Evolution of our Fleet and Network

Mark Galardo

Vice President, Network Planning

The Air Canada networkUnparalleled growth since 2009

89

123% Seat Growth116% Seat Growth 55 U.S. Destinations

64 New Destinations (48 International)

219 Destinations

Growing profitably – Air Canada system wideAir Canada capacity has grown 87% since 2009

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

-

20

40

60

80

100

120

2009 2014 2015 2016 2017 2018

Cents

RPM

s &

ASM

s (

Billions)

RPMs ASMs PRASM Yield

PLF 83.3%PLF

82.3%PLF

82.5%PLF

83.5%PLF 83.4%

PLF 80.7%

90

PLF = Passenger Load Factor

Network diversification strategyEnabling decrease in overall risk while profitably growing International and U.S. revenues

91

Share of Capacity

19%

38%

21%

20%

23%

2012

34%

23%

21%

22%

2015

29%

27%

23%

2018

Share of Revenues*

18%

2012

28%

27%

25%

30%

17%

27%

28%

2015

22%

30%

17%

30%

2018

Domestic U.S Transborder Atlantic Pacific & Other

Capacity is based on Available Seat Miles (ASMs), excluding charter. Total Revenues are based on Passenger and Cargo Revenue.*Air Canada adopted accounting standard IFRS 15 - Revenue from Contracts with Customers effective January 1, 2018. 2015 and 2012 amounts have not been restated for the adoption of this new accounting standard.

Our hubs are now global playersRanking by highest seat capacity in main hubs

92

Data based on peak summer 2019

Asia South AmericaEurope

RANK AIRLINE HUB

1 UA SFO

2 AC YVR

3 AC YYZ

4 UA EWR

5 AA DFW

6 AA LAX

7 DL DTW

8 DL SEA

9 UA ORD

10 DL ATL

RANK AIRLINE HUB

1 AC YYZ

2 UA EWR

3 DL JFK

4 DL ATL

5 AA PHL

6 AC YUL

7 UA IAD

8 AA DFW

9 UA ORD

10 DL DTW

RANK AIRLINE HUB

1 AA MIA

2 DL ATL

3 UA IAH

4 AA DFW

5 AC YYZ

6 UA EWR

7 AA JFK

8 AA LAX

9 UA ORD

10 UA IAD

Growth of traffic transiting Canada to/from U.S. Growing market share to 2% would represent approximately $675M of annual incremental revenue

93

2013 2014 2015 2016 2017 2018

+132%

US-PAC US-ATL

AC Transit Passengers Carried to/from U.S. Market Share of International*Traffic to/from U.S.

*USA-PAC/ATL 2018

12.0%

10.4%

7.2%

6.2%5.3%

3.1% 3.0% 3.0%2.2%

1.3%

DLUA VSAA BA LH AF EK KE AC Other

44.6%

Fleet - focusing on narrow-body replacement 2021 – Narrow-body count increases by 13 aircraft vs. 2018 / Wide-body count at 100 aircraft

94

Type 2009 2014 2018 2019 2021 On Option

Boeing 777 18 23 25 25 25 -

Boeing 787 - 6 35 37 37 13

Airbus A330 8 8 8 12 13 -

Boeing 767 30 21 6 - - -

Boeing 767 - 8 25 25 25 -

Total wide-bodies 56 66 99 99 100 13

A319/A320/A321 86 69 73 60 32 -

Boeing 737 MAX - - 18 36 50 18

Airbus A220 - - - 1 30 30

Embraer E190 45 45 19 14 - -

Airbus A319/A320/A321 - 20 28 38 39 -

Total narrow-bodies 131 134 138 149 151 48

95

Vancouver

Toronto

MontréalA220

BOEING 737 MAX

A320 FAMILY

Air Canada Rougeas a growing tool for regional

Leverage Boeing 737 MAX and A220in North America

International Growthwith focus on counter seasonality

Build our 3 Main HubsYYZ, YUL & YVR

Sustainable growth The path to further success

Future opportunities for growthStrategically leveraging our three main hubs

96

Serve Africafrom our main hub

Leveragea unique francophone market

Toronto YYZ

Amplifyour lead across the Atlantic

Further buildour global power-house

Diversifya strong gateway to Asia

Extendseasonal markets to year-round

Montréal YUL

Vancouver YVR

Leveraging our successful A++ Joint Venture Opportunity to further increase highly profitable “Hub-to-Hub” flying

97

✓ Hub-to-Hub routes are consistently profitable

• Network strength at both ends

• Capacity & schedule coordination

• Cross-carrier selling ability

• Product and pricing alignment

• Integrated sales force

• Increased value to top tier flyers

MontréalToronto

Vancouver ViennaMunichZurichFrankfurt

Brussels

Geneva

A320 Boeing 737 Max

Vancouver

HonoluluMaui Kona

Lihue

MontréalSt. John’s

Keflavik

Shannon London

BordeauxHalifax

West Palm Beach

CancunIxtapa

Puerto VallartaSan Jose del Cabo

San Francisco

Los Angeles Palm Springs

CalgaryEdmonton

Winnipeg

Aruba St. LuciaFort-de-France

Pointe-à-PitreSt. Maarten

New York (LGA)Toronto

Ottawa NantesFrankfurt

Orlando

Potential new routesExisting routes

CASM

-11%

Boeing 737 MAXOffering superior range & economics over the A320 family

98

First of 45 aircraft to enter service in January 2020

A220-300Unparalleled operating economics open the door to new possibilities

99

New Routes Under Analysis

Vancouver – Washington DC

Montréal - Seattle

Toronto - San Jose, CA

Vancouver - Halifax

-12%

CASM

Potential* new routesExisting routes

E190 A220-300

90 110 130 150 170 190

CA

SM

Capacity

A220-300 cont’dThe CASM & capacity sweet spot

100

A220

Boeing 737 MAX

A321

A320

A319E190

Data based on YYZ-SEA route Capacity based on seats

✓ A220-300 Competitive Advantages

• Operate long and thinner routes

• Offer more frequencies than our competitors

• Great CASM and lower trip cost than its predecessors

• Better low season capacity management

• Offer a consistent premium product

Counter-seasonal opportunitiesReducing network seasonality

101

Auckland

Vancouver

Quito

São Paulo

MontréalToronto

Q1 Q2 Q3 Q4

+33% +30%

2018 ASM Variance

✓ Actions to counter seasonality

• Launch winter seasonal routes

• Extend seasonal routes to year-round

• Better shoulder capacity management

• Australia, India and Florida among top performing markets year round, especially in winter

Honolulu

Strategic efficiency of RougeUpgauging from A319 to A320/A321 creates CASM reduction opportunity for Rouge narrow-bodies

CASM is based on variable expenses for average domestic route

A321A319 A320

-16%

-8%

Narrow-Bodies2018Fleet

2021Fleet

A319 22 22

A320 - 7

A321 6 10

Total Rouge narrow-bodies 28 39

Seats: 136 Seats: 168 Seats: 200

Rouge narrow-body routes running at passenger load factors in high 80s

Opportunity for margin improvement byupgauging A319 missions to A320 and A321

Rouge narrow-body CASM

Rouge narrow-bodies Upgauging from A319 to A320/A321 creates CASM reduction opportunity for Rouge Narrow-bodies

103

✓ Upgauging narrow-body capacity

• Superior CASM

• Economies of scale

• Ability to compete from our hubs

- Montreal – Victoria, BC- Calgary – London, ON- Toronto – Nanaimo, BC

Source: DIIO Mi 2018

A320 | 168 seats

A321 | 200 seats

A319 | 136 seats

Boeing 737-400 | 158 seats

Boeing 737-800 | 189 seats Boeing 737-800 | 189 seats

Enhancing our regional networkNew Jazz deal will enable Air Canada to further adapt to ever-changing environment

104

202320202019 2021 20252022 2024

Regional Aircraft

2018 2019 2020 2026

CRJ900 21 26 35 TBD

CRJ100/200 24 22 15 0

Bombardier Q400

44 44 36 TBD

Dash 8-300 25 23 19 TBD

Dash 8-100 15 0 0 0

Total 129 115 105 TBD

Rouge A321 - - +5 TBD

Jazz & Air Georgian fleet reduced from 129 to 105 aircraft by 2020

More jets & fewer turboprops to better operate long missions

$300M of undiscounted networkbenefits from renegotiated Jazz deal

Summary

✓ Focus on profitable growth

✓ Diversified network

✓ Boeing 737, Airbus A220 highlight narrow-body replacement program

✓ Strong position at our global hubs

✓ Further leverage our A++ JV

✓ Explore counter seasonal opportunities

✓ Fleet flexibility with enhanced CPA

✓ Optimize network

105

A Technological Transformation

Catherine Dyer

Senior Vice President and Chief Information Officer

Consistently at the forefront of innovation

107

ReservationAutomation

BlackBox

ExpressCheck-in

ElectronicBarcode Pass

ElectronicTicket

2D BarcodeTechnology

Mobile FlightNotification

1963

1965

1995 2006

1999 2007

2009

Digital technologies are redefining everything –including travel

108

A R T I F I C I A LI N T E L L I G E N C E

C L O U D B L O C K C H A I NI N T E R N E T

O F T H I N G S

A P I S / M I C R O S E R V I C E S

M O B I L E

We are investing in technology to become a global champion

109

Transform ourIT organization

to encourageinnovation and support

the required growth

Transformour technology

to enable improved customer and

employee experience

Focus on Safe, Secure and Reliable operations to mitigate

business risks

Safety first, always, in a cyber world

110

Identify Protect Detect Respond Recover

Abilityto identify

weaknesses and potential

threats

Abilityto protect the company’s and its stakeholders’

sensitive systems and information

Abilityto detect potential

attacks and breaches

Abilityto respondin a timely

and effective manner

Abilityto rapidly recover

to a normal operation

Safe, Secure and Reliable Operations

Preparing for the future by transforming our technology

111

Transform our Technology

E N A B L I N G T E C H N O L O G Y

M I S S I O N C R I T I C A L S Y S T E M S

E M E R G I N G T E C H N O L O G I E S

▪ E I P▪ C l o u d▪ N e t w o r k

▪ D a t a▪ D i g i t a l▪ A I

▪ P S S▪ L o y a l t y

Our technology improvements will be catalyst for improved airline operations and customer experience

112

RESERVATIONSINVENTORY

MANAGEMENTDEPARTURE CONTROL MERCHANDISING

CUSTOMER EXPERIENCE

MANAGEMENT

PASSENGER RECOVERY/

DISRUPTION MANAGEMENTGROUP MANAGEMENT LOYALTY

Transforming our reservation system supports our business objectives

113

Generate $100M+ in annual

incremental benefits

Improve operational efficiency

Improve customer experienceand enabling loyalty

1

2

3


Continuing to modernize technologies to support transforming our business

114

O P E R A T I O N A L S U I T E

P E O P L E P L A T F O R M

P R O C U R E M E N T S Y S T E M

Investing to innovate and lead in the industry

115


Data, Digital,&

Artificial Intelligence

Future opportunities for continued growth and optimization is substantial

11

Cargo

Crew Planning

& Scheduling

SOC & Ops Excellence

Feasibility

Valu

e t

o A

ir C

an

ad

a

Maintenance

Customer Care

Product

People & Culture

Finance

Global Sales &

Alliances

AirportsNA

Network Planning

E-Commerce, CRM,

Customer Analytics

Revenue Planning &

Optimization

Summary

117

✓ Taking back our spot as a technology innovator –smart investment / focused execution

✓ Setting the foundation for the next generation of the airline

✓ Positioned to differentiate ourselves within the industry through technology – digital first approach

Customer Digital and Loyalty

Mark Nasr

Vice President, Loyalty and eCommerce

36,252 customers consulted

That would fill over 90% of all the seats across Air Canada’s fleet

9 out of 10Approximate proportion of

members who knew their Aeroplan number off by heart

Global perspectiveThe consumers we consulted

travelled in Canada and all over the world in the past year

38 competitive programs

We looked at travel, retail and credit card programs across every

continent

147 hours of interviews

We met customers in their homes and in our offices, individually and in groups

11,610 total hours of surveys

Long enough to circle the globe 273 times in a Boeing 787 at

cruising speed

1 feline escapee, almost

We thwarted his attempt to leave the interview just in time. Phew!

1,000+ questions and suggestionsSubmitted to our microsite

120

The appeal is centred on the aspiration and relevance of travel

Infrequent travellers

Roadwarriors

Consumers who don’t travel

54% 4%42%121

Our program design delivers on what consumers want

122

Personalizationdrives

satisfaction

Enable the family dynamic

Balance practical with fanciful

Recognize customer

preferences drive satisfaction

Provide personal touches that

rival leading retail experiences

Consider individuals in the

context of their family-group

Tailor the experience based

on the trip purpose

Give customers the versatility

to use their miles to improve

their travel experience,

or lower the cost of their trip,

or save for a dream vacation

The opportunity

123

Increase credit card penetration of elite members

Increase loyalty penetration of airline flyers

Represents leading U.S. carrier performance based on internal benchmarking and public statements

38%

~50%

35%

~52%

Annual Repeat Customers

28% 16%

Market Share in Home Country

47%

22% 21%

16%

5%

0%

10%

20%

30%

40%

50%

Our goal is to win the hearts and minds of travellers – frequent and infrequent

Build Trust and

Confidence

Make Rewards

Rewarding

Recognize and

Differentiate

Intuitive ecosystem rooted in fairness and

common sense

Best in market rewards, network and global reach

Active engagement, attainable benefits

and recognition

“Earn our way into consumers’ lives everyday”

124

“Capital L” Loyalty strategy

125

The kind of Loyalty that sticks around, through thick and thin

126

Our plan

127

Aeroplan Acquisition & New Program Design

“Capital L” LOYALTY

Build the foundation for loyalty success

Evolve Testing & Continuous Improvement Capabilities

Embed a test-and-learn culture in everything we do

Digital Channel Investments

One-stop shop for all things travel

Together, we are stronger than ever and bring unique capabilities to market

128

Equivalent to 2nd largeste-commerce site in Canada (est.)

~5M members worldwide

12 month new members650K

2Mmobile app downloads

12Mmonthly

web visits

50.9M passengers/year

Canadians travel with Air Canada at least once per year

1 of 4

51% have a household income of $150K+

Members fly ~9x morethan the average Canadian

Members spend $17B+ on travel annually

of travellers for business travel within Canada

92%

Preferred airline of

Associated payment card annual spend

Greater than GDP of 140 countries

~10%

of all Canadian credit card spend is on an Aeroplan card

Our digital investments are paying off in incremental revenue and uptake

~16% YoY increase in

digital channel revenue

30% of customers opted into paid seat

selection via AC direct

>$1B in ancillary revenue generated

via digital

53% upsell in branded fares beyond Basic

The highest of all Air Canada channels

Double our 2016 results

13% growth YoYDouble the upsell rate

on other non-AC online channels

129

Transforming the way we work –test and learn approach

3 weeks

Web release every

3 weeks

Mobile release every

100+ test in-take

DTL tests completed/in-market

130

132

We continue to prototype, test and iterate with customersto understand what matters most, and why

“Capital L” results

133

✓ De-risks loyalty launch, supporting smooth customer transition

✓ Generates significant incremental value for Air Canada

– Financial contributions starting 18 months early

– Eliminates 3-4 year ramp period

– Incremental revenue, cost savings, and consortium contributions from American Express

✓ Enables significant growth in member base

✓ Additional value in ancillary revenue and distribution costs

7Mmembers

2019

Targeting 40% growth over

3 years of launch

Earlierincremental

revenue

Financial Targets and Risk Management –the Next LevelMichael Rousseau

Deputy Chief Executive Officer and Chief Financial Officer

Significant progress

135

✓ Sustainably profitable over

long term

✓ Delivered on commitments

✓ Much lower risk profile

✓ ROIC well in excess of WACC

Opportunities ahead


Loyalty

A220

Improved key financial targets

136

1. Targets factor in the expected impact of the new accounting standard change IFRS 16

2. Based on the consolidated results of Air Canada, including the Aeroplan loyalty business starting from the acquisition date of January 10, 2019.

Improved key financial targets

137

Over the period 2019-2021

✓ Annual EBITDA margin 19% – 22%

✓ Annual return on invested capital 16% – 20%

✓ Cumulative free cash flow $4.0B – $4.5B

✓ Leverage ratio No more than 1.2 by end of 2019

Based on assumptions outlined in Air Canada’s February 28, 2019 news release

Project strong EBITDA marginsUnique competitive advantages

138

Project strong EBITDA margins cont’d

✓ Investments in technology – new reservation system

– Annual incremental benefits of $100M

✓ Cost Transformation Program

– Savings of $250M by end of 2019

✓ Replacement of less-efficient narrow-body aircraft

✓ Incremental benefits from extended capacity purchase agreement with Jazz

✓ Acquisition of Aeroplan loyalty business and launch of new program

139

Cost reduction remains a priority

140

Air Canada Rouge

• Adjusted CASM is 29% lower than mainline

Fleet

• Boeing 777 and 787 cost-efficient fleet

• Complete restructuring of regional fleet


• Renegotiation of agreements

Building on cost productivity focus

On a cumulative six-year basis, Air Canada’s CASM performance was materially better than both WestJet’s and the U.S. Network Carriers

141

• U.S. network carriers includes: Delta Airlines, United Airlines and American Airlines. CASM excludes fuel and special items/charges. Excludes third-party business expenses at United Airlines.

WestJet (including profit share – comparable to Air Canada)

Air Canada

U.S. network carrier average

16.9%

-14.0%-9.8%

8.9%

Air Canada Adjusted CASM. Normalized for the impact of the USD/CAD exchange rate on operating expenses, using 2012 as the base year

Air Canada Adjusted CASM

WestJet Adjusted CASM (including profit share –comparable to Air Canada)

U.S. network carrier average

2018 Adjusted CASM (in cents)(in local currency)

Adjusted CASM % Change 2012-2018

10.16 10.63 10.69

Increased competitiveness in regional sector

Jazz CPA extended by 10 years (Jan. 1, 2026 to Dec. 31, 2035)

• Provides significant network benefits

• Bolsters strength of Air Canada Express brand

• Improves coast-to-coast regional network

• Air Canada Rouge backfilling certain routes

142

143

Amended CPA with Jazz –Estimated NPV of $275M (2019-2025 period)

143

$50M2019

$50M2020

$53M2021-2025

Competitive rates2026-2035

$97M equity investment — excellent value for shareholders

Loyalty

• Aeroplan loyalty business

• Launch of new loyalty program in summer 2020

144

Loyalty cont’d

Incremental benefits incorporated into three-year targets

• NPV in excess of $2.5B

• Materially contributes to free cash flow

• Improves seasonality

• Reduces risk profile from introduction of new program

145

Narrow-body fleet replacement program –Average mainline fleet age 8.5 years at end of 2021

$600M - $800M annually in non-aircraft expendituresfocused on investments in technology

Level of projected capital expenditures to decline by $1.4B by end of 2021, when compared to 2019

By middle of next decade, certain Rouge aircraft will need to be replaced due to their age

IFRS 16 adds $200M to projected CAPEX due to higher capitalized maintenance (offset is reduced maintenance expense) (versus 2018 MD&A)

Declining level of capital expenditures

146

Capital allocation strategy

• Continue to aggressively manage debt levels

• Purchasing majority of 2019 aircraft deliveries with excess cash

• Share buyback program

147

CUMULATIVE FREE CASH FLOW* OF $4.0B TO $4.5B OVER NEXT THREE YEARS

* Excludes the net proceeds on the closing of the Aeroplan transaction

Leverage ratio of no more than 1.2 supports Investment Grade credit rating

S&P 4 notch improvement to BB with positive outlook

Moody’s 5 notch improvement to Ba2 Stable

148

SINCE 2012, AIR CANADA’S CREDIT RATING IMPROVED

More aggressive buyback program an opportunity

• Will continue to utilize Normal Course Issuer Bid

• Expect to be more aggressive when opportunities present themselves

149

PURCHASED, FOR CANCELLATION, 23.4M SHARES OR 8% OF OUTSTANDING SHARES(SINCE MAY 2015)

Much stronger balance sheet

✓ Lowered leverage ratio to 2.1 from 3.1 since end of 2012

✓ Reduced average cost of debt to 4.4%

✓ Average cost of capital of 7.2%, 540 basis points lower than ROIC of 12.6%

✓ Freed up collateral by purchasing new aircraft

✓ US$2.6B unencumbered assets –will increase in 2019

✓ Record unrestricted liquidity of $5.725B –will increase post-Aeroplan acquisition

✓ Excess cash of $2.0B

150

Financial risks are very well managed

151

FOREIGN EXCHANGE RISK MANAGEMENT

FUEL RISK MANAGEMENT

PENSION

• $2.4B* solvency surplus• 81% of liabilities matched with fixed income products

• No past service or current service payments required

• Flexible program• Currently unhedged• Derivative contracts• Assessing IMO 2020 market impact

• U.S cash reserves• Derivative contracts• 75% coverage for 18 months

*Based on preliminary estimates as of January 1, 2019

Much more resilient to economic downturns

✓ Higher margins

✓ Lower cost structure

✓ Record liquidity levels

✓ Lower leverage ratio

✓ Unencumbered asset pool

✓ Diversified network – less dependent on domestic

✓ Flexible and more efficient fleet

✓ Ability to defer new aircraft future deliveries

✓ Lease mix allows Air Canada to permanently reduce capacity if required

152

Much more resilient to economic downturns cont’d

153

Currently

55(23%)

Unencumbered aircraft• Air Canada and

Air Canada Rouge

By end of 2021

100 (40%)

Currently 55% of combined Mainline and Rouge is leased –Ratio will decrease as Air Canada purchases more aircraft with cash

Cost-efficient fleet

Boeing 787

Boeing 737 MAX

Airbus A220


154

High-density aircraft

Boeing 767

Airbus A321

Airbus A319/A320


Long-term labour agreements

Summary

✓ Record results

✓ Improved key financial targets

✓ New Jazz agreement – net present value of $275M

✓ Loyalty program – net present value in excess of $2.5B

✓ Lower risk profile – record liquidity levels, large unencumbered asset pool and pension solvency surplus

✓ Adjusted CASM performance in line with U.S. network carriers

✓ Lower leverage ratio supports Investment Grade credit rating

✓ A more aggressive share buyback program an opportunity

✓ More resilient to economic downturns than ever before

156

Closing Remarks

Calin Rovinescu

President and Chief Executive Officer

February 28, 2019

$18.1B

Report card

Operating Revenue

Over $2.8BEBITDAR

$2.4B* surplusPension Solvency Position

2.1xLeverage Ratio

$5.7BLiquidity

8.4% reduction since 2013Adjusted CASM

*Based on preliminary estimates as of January 1, 2019

Eco-Airline of the World

Up 2.5% vs. 2017

Report card cont’d

Yield

Up 3.8% vs. 2017PRASM

Up 142% vs. 2013Transit Traffic

Nearly 30M customersAir Canada Rouge

Long term stabilityEmployees and unions

Skytrax – Best Airline North AmericaCustomer engagement

Sustainability efforts

Acceleration for 2019

Continue to leverage and mature new markets

Invest in new programs and efficient aircraft


Investment grade and share buybacks

Industry-leading in-house loyalty program

Cost reduction programs including improved CPA

aircanada.com

Questions?

161

aircanada.com

Thank you

162

Appendix

163

Annual Assumptions 2019 - 2021

2019 2020 2021

GDP Canada Relatively Modest Growth

Canadian dollar per U.S. dollar 1.32 1.29 1.28

Jet fuel price – CAD cents per litre 82 84 85

164

Financial Information

• Air Canada’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in Canada (“GAAP”), as set out in the CPA Canada Handbook –Accounting (“CPA Handbook”), which incorporates International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

• The 2018 comparative financial information contained in this presentation has been restated for the adoption of the new accounting standard IFRS 16 Leases which became effective January 1, 2019. Refer to Air Canada’s 2018 consolidated financial statements and 2018 MD&A for additional information.

• The forward looking financial information in this presentation is based upon the accounting policies and assumptions in effect as of January 1, 2019 and does not reflect the impact of any accounting standard changes that may be applicable to the Corporation’s financial statements in the future.

165

Non-GAAP Financial Measures

Air Canada uses certain non-GAAP financial measures that are derived from its consolidated financial statements, but that are not recognized financial measures for financial statement presentation under GAAP. Reconciliations of those measures to comparable GAAP measures for the relevant periods can be found in Air Canada’s Management’s Discussion and Analysis reports, which are available on Air Canada’s website at aircanada.com.

Adjusted Pre-Tax Income (Loss)

• Air Canada uses adjusted pre-tax income (loss) to assess the overall pre-tax financial performance of its business without the effects of foreign exchange gains or losses, net financing income (expense) relating to employee benefits, gains or losses on financial instruments recorded at fair value, gains or losses on sale and leaseback of assets, gains or losses on debt settlements and modifications, gains or losses on disposal of assets, Aeroplan intangible asset amortization, and special items as these items may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful. Air Canada uses adjusted pre-tax income (loss) before interest expense to determine return on invested capital.

166


Adjusted Net Income (Loss)

• Air Canada uses adjusted net income (loss) to assess the performance of its business without the after-tax effects of foreign exchange, net financing income (expense) relating to employee benefits, gains or losses on financial instruments recorded at fair value, gain or losses on sale and leaseback of assets, gains or losses on debt settlements and modifications, gains or losses on disposal of assets, Aeroplan intangible asset amortization, and special items as these items may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful.

EBITDA

• EBITDA (earnings before interest, taxes, depreciation, amortization and impairment) is commonly used in the airline industry to view operating results before depreciation, amortization and impairment as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.

• EBITDA excludes special items as such items would distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful.

167


Adjusted CASM (Adjusted Cost per Available Seat Mile)

• Adjusted CASM is used by Air Canada as a means to assess the operating and cost performance of its ongoing airline business without the effects of fuel expense, the cost of ground packages at Air Canada Vacations®, the operating costs of Aeroplan, and special items, as such expenses may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful. Aircraft fuel expense is excluded from operating expense results as it fluctuates widely depending on many factors, including international market conditions, geopolitical events, jet fuel refining costs and Canada/U.S. currency exchange rates. Air Canada also incurs expenses related to ground packages at Air Canada Vacations which some airlines, without comparable tour operator businesses, may not incur. In addition, these costs do not generate ASMs and therefore excluding these costs from operating expense results provides for a more meaningful comparison across periods when such costs may vary. Air Canada began consolidating Aeroplan’s results on the January 10, 2019 acquisition date. Given that the Aeroplan loyalty business was not consolidated in Air Canada’s financial results in 2018, for comparative purposes, Air Canada’s adjusted CASM guidance for 2019 excludes any impact of Aeroplan.

168


ROIC (Adjusted Pre-tax Income Before Interest Divided by Invested Capital)

• Air Canada uses return on invested capital (“ROIC”) as a means to assess the efficiency with which it allocates its capital to generate returns.

• ROIC is based on adjusted pre-tax income (loss), excluding interest expense.

• Invested capital includes average year-over-year long-term debt, average year-over-year lease obligations and average year-over-year shareholders’ equity, net of excess cash not required to run its core business operations.

• Air Canada calculates invested capital based on a book value-based method of calculating ROIC, as described above. Refer to the definition of adjusted pre-tax income (loss) for a discussion as to why Air Canada uses adjusted pre-tax income (loss) to assess the overall pre-tax financial performance of its business.

169


Leverage Ratio (Net Debt to Trailing 12-month EBITDA)

• Leverage ratio is commonly used in the airline industry and is used by Air Canada as a means to measure financial leverage. Leverage ratio is calculated by dividing net debt by trailing 12-month EBITDA (excluding special items).

Free Cash Flow

• Free cash flow is commonly used in the airline industry and is used by Air Canada as an indicator of the financial strength and performance of its business, indicating the amount of cash Air Canada is able to generate from operations and after capital expenditures. Free cash flow is calculated as net cash flows from operating activities minus additions to property, equipment and intangible assets, and is net of proceeds from sale-leaseback transactions.

170

Estimated Expected Adjustments to the Statement of Financial Position as at January 1, 2018 under IFRS 16

(Canadian dollars in millions)

December 31, 2017 as previously

reported Air Canada aircraft Regional aircraft Property leases

Expected January 1, 2018

as restated

Accounts receivable $ 814 $ (3) $ - $ - $ 811

Deposits and other assets 465 (63) - - 402

Property and equipment 9,252 1,649 766 160 11,827

Deferred income taxes 456 71 144 13 684

Total assets $ 17,782 $ 1,654 $ 910 $ 173 $ 20,519

Accounts payable and accrued liabilities 1,961 (22) (12) - $ 1,927

Current portion of long-term debt and leases 671 357 146 12 1,186

Total current liabilities 5,101 335 134 12 5,582

Long-term debt and lease liabilities 5,448 1,452 1,092 198 8,190

Maintenance provisions 1,003 70 78 - 1,151

Other long-term liabilities 167 (8) - - 159

Total liabilities $ 14,360 $ 1,849 $ 1,304 $ 210 $ 17,723

Retained earnings 2,554 (195) (394) (37) 1,928

Shareholders' equity $ 3,422 $ (195) $ (394) $ (37) $ 2,796

Total liabilities and shareholders' equity $ 17,782 $ 1,654 $ 910 $ 173 $ 20,519

171

Estimated Expected Adjustments to the 2018 Consolidated Statement of Operations under IFRS 16

(Canadian dollars in millions)

December 31, 2018 as previously

reported Air Canada aircraft Regional aircraft Property leases

Expected December 31, 2018

as restated

Total revenues $ 18,065 $ - $ - $ - $ 18,065

Regional airlines expense 2,842 - (323) - 2,519

Aircraft maintenance 1,003 (100) - - 903

Depreciation, amortization and impairment 1,080 424 197 16 1,717

Aircraft rent 518 (512) - - 6

All other (including property rent) 11,448 - - (27) 11,421

Total operating expenses 16,891 (188) (126) (11) 16,566

Operating income 1,174 188 126 11 1,499

Interest expense (331) (131) (91) (14) (567)

Foreign exchange and other (438) (157) (105) (1) (701)

Total non-operating expense (769) (288) (196) (15) (1,268)

Income before income taxes 405 (100) (70) (4) 231

income tax expense (238) 27 19 1 (191)

Net income $ 167 $ (73) $ (51) $ (3) $ 40

172

Key Financial and Non-GAAP Measures under IFRS 16

(Canadian dollars in millions, except where indicated)2018 restated under IFRS 16

2018 as under previous IFRS Change

Revenue $ 18,065 $ 18,065 $ -

Operating expense, before depreciation and aircraft rent 14,843 15,214 (371)

Depreciation and aircraft rent 1,723 1,677 46

Operating expense 16,566 16,891 (325)

Operating income $ 1,499 $ 1,174 $ 325

EBITDA (EBITDAR) $ 3,222 $ 2,851 $ 371

EBITDA (EBITDAR) Margin % 17.8% 15.8% 2.0 pp

Adjusted pre-tax income $ 1,039 $ 952 $ 87

ROIC % 14.5% 12.6% 1.9 pp

Leverage ratio 1.6 2.1 (0.5)

Free cash flow $ 1,322 $ 791 $ 531

173

Contractual Obligations as at December 31, 2018for IFRS 16 Lease Obligations

174

(Canadian dollars in millions) 2019 2020 2021 2022 2023 Thereafter Total

Additional Principal

Air Canada aircraft $ 403 $ 310 $ 230 $ 162 $ 162 $ 583 1,850

Regional CPA aircraft 180 183 172 167 169 312 1,183

Property leases 10 11 9 8 8 186 232

Total principal obligations 593 504 411 337 339 1,081 3,265

Additional Interest

Air Canada aircraft 119 88 65 51 41 85 449

Regional CPA aircraft 84 70 56 44 30 26 310

Property leases 14 14 13 12 12 199 264

Total interest obligations $ 217 $ 172 $ 134 $ 107 $ 83 $ 310 $ 1,023

Total lease obligations $ 810 $ 676 $ 545 $ 444 $ 422 $ 1,391 $ 4,288

Revised total long-term debt and lease obligations

Principal $ 1,048 1,194 1,431 694 1,805 3,853 10,025

Interest 504 440 354 288 238 666 2,490

$ 1,552 $ 1,634 $ 1,785 $ 982 $ 2,043 $ 4,519 $ 12,515

Obligations related to leases not recorded as IFRS 16 lease obligations $ 28 $ 19 $ 13 $ 8 $ 7 $ 23 $ 98

Non-GAAP Measures under IFRS 16 - EBITDA

175

(Canadian dollars in millions)2018 restated under IFRS 16

2018 as under previous IFRS $ Change

GAAP operating income $ 1,499 $ 1,174 $ 325

Add back (as reflected on the consolidated statement of operations):

Depreciation, amortization and impairment 1,717 1,080 637

Aircraft rent 6 518 (512)

Add back (included in Regional airlines expense):

Depreciation, amortization and impairment - 38 (38)

Aircraft rent - 41 (41)

EBITDA (EBITDAR) $ 3,222 $ 2,851 $ 371

Non-GAAP Measures under IFRS 16 - ROIC

176

(Canadian dollars in millions, except where indicated)2018 restated under IFRS 16

2018 under previous IFRS $ Change

Income before income taxes $ 231 $ 405 $ (174)

Remove:

Foreign exchange loss578 317

261

Net financing expense relating to employee benefits 50 50 -

Loss on financial instruments recorded at fair value 1 1 -

Gain on debt settlements and modifications (9) (9) -

Loss on disposal of assets 188 188 -

Adjusted pre-tax income $ 1,039 $ 952 $ 87

Interest expense 567 331 236

Implicit interest on operating leases - 274 (274)

Adjusted pre-tax income before interest $ 1,606 $ 1,557 $ 49

Invested capital:

Average long-term debt and finance lease obligations 9,649 6,386 3,263

Average shareholders’ equity, net of excess cash 1,375 2,065 (690)

Capitalized operating leases - 3,913 (3,913)

Invested capital $ 11,024 $ 12,364 $ (1,340)

Return on invested capital (%) 14.5% 12.6% 1.9%

Non-GAAP Measures under IFRS 16 – Leverage Ratio

177

(Canadian dollars in millions, except where indicated)December 31, 2018

under IFRS 16December 31, 2018 under previous IFRS $ Change

Total long-term debt and leases $ 8,873 $ 6,197 $ 2,676

Current portion of long-term debt and leases 1,048 455 593

Total long-term debt and leases, including current portion

9,921 6,652 3,269

Less cash, cash equivalents and short-term investments (4,707) (4,707) -

Net debt $ 5,214 $ 1,945 $ 3,269

Capitalized operating leases - 3,913 (3,913)

Adjusted net debt $ 5,214 $ 5,858 $ (644)

EBITDA (EBITDAR) $ 3,222 $ 2,851 $ 371

Leverage ratio 1.6 2.1 (0.5)

Non-GAAP Measures under IFRS 16 – Free Cash Flow

178

(Canadian dollars in millions)2018 restated under IFRS 16

2018 as under previous IFRS $ Change

Net cash flows from operating activities $ 3,465 $ 2,695 $ 770

Additions to property, equipment and intangible assets, net of proceeds from sale-leaseback transactions

(2,143) (1,904) (239)

Free cash flow $ 1,322 $ 791 $ 531

caution regarding forward-looking - air canada · june 1, 2015 $14.19 (+134%) june 7, 2013 $ 2.27...

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