Air Canada Establishes New Financial Targets

Published on : Wednesday, June 3, 2015

air canada planeAs part of a comprehensive strategic plan update to the investment community, Air Canada will establish three new financial targets at its 2015 Investor Day to be held today in Toronto from 09:00 to 12:00 EST.

 

 

Building on the success of its business plan, from 2015 until 2018, Air Canada is targeting an annual EBITDAR(1) margin (earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent, as a percentage of operating revenue) of 15 to 18 percent and a year-over-year return on invested capital (ROIC) (1) of 13 to 16 percent during that period and, by 2018, a leverage ratio(1) of 2.2 (measured by adjusted net debt over normalized EBITDAR).

 

 

“We have continued to make significant progress in the execution of our business plan since we first provided the investment community with our financial targets in June 2013,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada. The implementation of our fleet initiatives, capital programs, liquidity targets and debt levels remain on target and we’re delivering on a permanently lower cost structure while profitably growing our business, especially our international routes.

 

 

“With our growth, we have successfully expanded margins, increased adjusted net income and improved our return on invested capital, thereby creating substantial value for shareholders. We’ve strengthened our balance sheet, reduced the cost of debt and most significantly achieved all of our objectives in restructuring our pension plans. Now that our pension plans are healthy and in a surplus position, by opting out of the special Air Canada 2014 pension regulations, we expect to free up approximately $1.1 billion in previously allocated deficit funding contributions over the next six years which may now be redeployed to further improve our competitive position and create incremental value.

 

 

“In 2013, we set out to achieve some very specific targets relating to our costs per available seat mile (CASM) and ROIC, amongst others. Building on our successful execution against these targets, we are raising the bar with more ambitious objectives and are confident that our new financial targets will be attained.  We will continue our singular focus on the four priorities that have brought us this far – namely, reducing costs and enhancing revenues, profitably growing by leveraging our international network and partnerships, engaging our customers and culture change. Our new targets are significantly higher than those we set out in 2013 and reflect our confidence that we are pursuing the right strategic plan to deliver sustained profitability and value for our shareholders over the long term and that we are executing on it successfully,” said Mr. Rovinescu.

 

 

At its June 2013 Investor Day, Air Canada had projected that a number of key initiatives, including the roll-out of Air Canada rouge® and the introduction of the new Boeing 787 Dreamliners, taken together, would drive an estimated 15 percent reduction in CASM by 2018 when compared to 2012. Since its June 2013 Investor Day, the airline added and announced a number of new cost reduction initiatives, including:

 

 

 

 

Air Canada is on track to exceed the 2013 Investor Day Targets and, taking the added initiatives into account, now estimates that it should realize CASM savings (excluding the impact of foreign exchange and fuel prices) of 21 percent by the end of 2018 when compared to 2012.

 

 

In addition, at the end of the first quarter of 2015, unrestricted liquidity was at $3.123 billion (compared to a minimum target of $1.7 billion), ROIC was at 15.2 percent (compared to a target of 10-13 percent) and the airline’s leverage ratio, as measured by adjusted net debt over normalized EBITDAR, was at 2.6 (compared to a target ceiling of 3.5).

 

 

The outlook provided in this news release constitutes forward-looking statements within the meaning of applicable securities laws, are based on a number of assumptions and are subject to a number of risks and uncertainties. Please see section below entitled “Caution Regarding Forward-Looking Information”.

 

 

 

Major Assumptions

 

 

Assumptions were made by Air Canada in preparing and making forward-looking statements. As part of its assumptions, during the 2015 to 2018 period, Air Canada assumes annual Canadian GDP growth of 2.0 to 2.4 percent, annual Canadian Consumer Price Index (CPI) growth of 2.1 percent, and an average annual wage rate increase of 2.0 percent. Air Canada also assumes that the Canadian dollar will trade, on average, atC$1.22 to C$1.23 per U.S. dollar and that the price of jet fuel will average 70 cents to 81.5 cents, as set out in the table below for each year during the 2015 to 2018 period.

 

 

The following table summarizes major annual assumptions:

 

 

 

Major Annual Assumptions 2015 to 2018
Canadian economy Canadian GDP growth of 2.0% to 2.4%
Consumer Price Index (CPI) Canadian CPI growth of 2.1%
Average annual wage rate increase 2.0%
2015 2016 2017 2018
Canadian dollar per U.S. dollar 1.22 1.23 1.23 1.22
Jet fuel price – CAD cents per litre 70.0 78.5 80.5 81.5

 

 

 

(1)  Non-GAAP Measures

 

 

Below is a description of certain non-GAAP measures used by Air Canada to provide additional information on its financial and operating performance.  Such measures are not recognized measures for financial statement presentation under Canadian GAAP and do not have standardized meanings and may not be comparable to similar measures presented by other public companies.  Refer to Air Canada’s Management Discussion and Analysis reports for the relevant periods for reconciliation of non-GAAP financial measures.

 

 

 

 

CAUTION REGARDING FORWARD-LOOKING INFORMATION 

 

 

This news release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable.  These statements may involve, but are not limited to, comments relating to preliminary results, guidance, strategies, expectations, planned operations or future actions.  Forward-looking statements are identified by the use of terms and phrases such as “preliminary”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and similar terms and phrases, including references to assumptions.

 

 

Pension funding obligations under normal funding rules are generally dependent on a number of factors, including the assumptions used in the most recently filed actuarial valuation reports for current service (including the applicable discount rate used or assumed in the actuarial valuation), the plan demographics at the valuation date, the existing plan provisions, existing pension legislation and changes in economic conditions (mainly the return on fund assets and changes in interest rates). Actual contributions that are determined on the basis of future valuation reports filed annually may vary significantly from projections. In addition to changes in plan demographics and experience, actuarial assumptions and methods may be changed from one valuation to the next, including due to changes in plan experience, financial markets, economic conditions, future expectations, changes in legislation, regulatory requirements and other factors.

 

 

Source:- Air Canada

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