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AC Investor day: Bullish outlook continues


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https://beta.theglobeandmail.com/report-on-business/air-canada-seeking-credit-card-partner-for-new-loyalty-program/article36296202/

 

Canada's largest airline will offer what it calls an ultralow-cost fare on selective flights and expand its low-cost Rouge network to regional routes in Canada, Air Canada executives said in presentations Tuesday to investors and analysts.

"The low-fare option that is now going to be at our disposal definitely is in our back pocket for strategic use," said Ben Smith, the carrier's president of passenger airlines. "That is definitely going to be deployed strategically."

 

It won't be available on all flights, he said, but "where we need to do it for market reasons and competitive reasons, that's where we'll deploy it."

It's one potential response to the arrival of Canada Jetlines Ltd. and the as-yet unnamed ULCC being planned by WestJet Airlines Ltd., both of which are scheduled to start service next summer, joining Flair Airlines Ltd., which has already begun flying.

 

The airline said in an update to its financial targets that it plans to generate free cash flow of $2-billion to $3-billion between 2018 and 2020, and that the creation of its own loyalty program when it terminates the Aeroplan system in 2020 will generate $2-billion to $2.5-billion in net present value over a 15-year period.

The startup costs for the loyalty program will amount to $85-million, chief financial officer Michael Rousseau said.

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I'm happy for that. I'm a bit less happy that Ben Smith's presentation to investors cited "low pilot costs" as a competitive advantage after our union just spent two months convincing us that this is the best we'll get. Feels like we got dunked on here. Stock price is nice tho. ¯\_(ツ)_/¯ 

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Ben Smith's presentation to investors cited "low pilot costs" as a competitive advantage

@Zan Vetter I am a long time reader of this forum - your comment compelled me to sign up. 

Were you at Investor's Day? The presentation did not cite "low pilot costs" as a competitive advantage. AC long term labour agreements result in cost certainty, which enables investments, which in turn results in more benefits and more opportunity for all AC stakeholders. 

Lower costs are mentioned in the Air Canada Rouge slide, which as we know,  was created for the specific purpose of having a lower CASM to compete with Sunwing and Transat. The recent ratification of the amendment to the ACPA CA provides for material gains to mainline and Rouge with no downside for our pilots and other AC stakeholders. Do you think Jazz pilots are happy with this amendment?

Statements like this are very unfortunate and hurt the progress that has been made between ACPA/AC. Comments like this, build mistrust among the Air Canada team, only helps the competition. 

We should be celebrating the progress that has been made and great results. 

 

https://www.aircanada.com/content/dam/aircanada/portal/documents/PDF/speeches-presentations/en/investor-day-2017.pdf

 

https://webcasts.welcome2theshow.com/AC-InvestorDay2017 

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3 hours ago, Dreamliner_AC said:

The recent ratification of the amendment to the ACPA CA provides for material gains to mainline and Rouge with no downside for our pilots and other AC stakeholders

This comment wasn't direct at me, but I'll respond anyway.

There's certainly a case to be made that AC will need further cost savings given that we may soon see ULCCs operating in Canada, but that's a separate debate. 

Your contention, however,  that there is absolutely no downside for AC pilots or other AC stakeholders to a large expansion of Rouge is highly debatable.

 

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Slide 35 from your link to the presentation, specifically. I guess I have to retract my pilot comment and make it towards labour more generally. Which two labour groups provide the savings? I'm finding it harder and harder to hold these to thoughts- record profitability and low labour costs- the same time and not, I hope you see this, be a little frustrated. Against a backdrop of scarcity.

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The more the pilot group agrees to expand rouge, the more the flight attendant group shoulders their burden of the cost savings by expanding the percentage of  the rouge numbers versus mainline. Besides the Service Director, we make no more money flying wide body than narrow. Would that cover the two groups if the pilot group has protected wide body flying (better pilot pay, in general) versus narrow body flying (lower pilot pay, in general) in exchange for expanding rouge? We'll see.

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Interesting thread.

First comment to Dreamliner_AC.  Welcome to the forum as an active poster. 

As a long time reader, you will no doubt realise that nothing comes without side effects in this business.  The scheduling flexibility, savings, whatever has been taken out of the pilot contract, means there is more of a burden on individual pilots than there was.  Whether it is flying longer duty days with less rest or having planned sleep disrupted when a planned, short day is replaced with something more onerous at crew sked's discretion, there are very real human costs associated with all of this profitability. 

Anyone with a stake in AC wants the brand to succeed.  But have a look at what is actually happening to the pilots on a personal level.    If you don't have access to that information, you likely know someone who does.  Sooner or later, either we are going to realise you can't ignore these effects on safety critical positions, or that realisation is going to be brought to us by an external authority. 

As for the Jazz pilots not being happy, all that means is one group is whipsawing another.  In this industry, that is going to come around and, while the two groups are opposed, the unity needed to deal with the erosion of the schedules, rest, and foundation that pilots need to come to work in a proper state will be forestalled.   Great if you are an investor managing to the quarter.  Not so good in the long run.

Moeman, your comments are accurate wrt the flight attendant burden.   The problem right now is that, just like the Jazz whipsaw, the union representing the flight attendants would rather attack ACPA than try and find common ground, so the collaboration and strategy necessary to find the best way forward is a non starter.  The B passes are just one such example.   The flight attendants association claim that this benefit is unfair,  yet there are numerous benefits the flight attendants already have that the pilots cannot get (per diem meal eligibility, commuter policy come readily to mind), and there is zero appetite to level out on those.

As long as the unions are at each others' throats, nothing is going to improve.  The discussion with the regulator will continue to be muddled with noise and the industry lobbiests will take advantage.

All IMO. 

Vs

 

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Thanks for confirming @Zan Vetter
Everyone is entitled to their own opinion. However it would be hard not to admit that our airline and our careers are now on the most solid foundation thery have ever been during our entire 80 year history. 
Ever since deregulation in the 70s the fact remains that our marketplace has been and continues to be much more competitive and that consumers have more choices than ever before. It is up to us to ensure that we offer a service that is both highly valued and remains in demand. We are a customer service business and like any other business it is the consumers that will decide on our future and success. 
I'm sure everyone throughout our entire company would prefer their jobs remain the same or even revert back to what they were in the past. Many of us don't like change. It would be helpful to reflect upon the adversities that have confronted us during the last decade - 
Merger, successful WS and TS models winning the marketplace, 9/11, SARS, bankruptcy, global financial crisis, massive pension deficit.....None of these events were under our control and unfortunately they resulted in a weak airline, limited job prospects and a poor internal culture.  
Our model was not sustainable.  
Fast forward to 2013 we were fortunate in that most of us supported a plan that was based on growth in the hope that our prospects for the future would be significantly improved. We are finally profitably growing. Our collective plan is a success.  
We now have a transformed, modern mainline fleet either on the property or on order. 777s, 787s, 737MAXs and CS300s.  
We're hiring throughout our airline in numbers not seen in over 30 years.  
We now have an innovative subsidiary that is giving our leisure competitors a real run for their money. Despite a difficult beginning this model is working and many believe it's working for all of us. For our Pilots and Flight Attendants at mainline, new destinations and new wide bodies are being added at an unbelievable pace. Pay and lifestyle are improving in positive ways. The time it now takes to get to choice positions is considerably faster. It's clear that our transformation has brought enormous change. Some of us will need to make different choices to take advantage of our new opportunities. 
Mainline profitably flying to leisure destinations such as Athens and Montego Bay is obviously not sustainable. Forcing a mainline model on rouge will destroy it and push that business and the related jobs to Sunwing and Transat. It is clear our mainline model and our rouge model are working well and winning in their respective areas of strength. We must learn from the experiences and not rigidly adhere to an old model that is destined to fail. 
It's great to see our colleagues at rouge want to be there and if they choose can transfer to mainline and the same is true in the reverse. 
A reading of our various contracts shows strong protections around the interlinking of mainline and rouge. Who would ever believe that we could profitably operate 96 widebodies.
Some of us don't like this model but to date a superior plan has not been forthcoming. 
It is clear many people throughout our airline work incredibly hard to ensure we remain competitive. Our unions and management teams now respect each other a major change within our airline that has clearly benefitted all of us.  
Most of us are now focused and dedicated in ensuring that we remain as competitive within our marketplace as possible. Most appreciate that as a result, benefits are flowing to all. Many of us appreciate how fortunate we are to be able to work at our airline of choice which is, and will hopefully remain, the premier airline of choice for employees and customers alike. 
Investors believe in us and it's being reflected in the ever increasing demand for our stock. 
Our competitors would like nothing more than for us to fail. 
 
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Dreamliner_AC,  perhaps you would be good enough to disclose if you hold or have recently held (within the past six months, say)  a management, supervisory or union position, elected or otherwise.   Not trying to out anyone, but your comments need context.

Vs

 

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1 hour ago, Dreamliner_AC said:
For our Pilots and Flight Attendants at mainline, new destinations and new wide bodies are being added at an unbelievable pace.
 

For us at mainline, destinations have also vanished at an unbelievable pace.  That is likely to continue as Rouge gets even bigger.

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dagger we can get stock quotes anywhere. I'm continually baffled by how completely some people have adopted upper management's (I say that generally, societally, many companies) obsession with the stock price. Not to say who cares but really...who cares. This is a bit like Trump taking credit for the US market rally. I'm guessing when it starts to go back down again, the same people won't be talking about it so much. 

For the rank and file especially, but only speaking for myself, I derive perhaps 5% of my earnings from the stock. I sell every year. Which I have regretted on a pure performance basis in this record era, because I would have had several hundred thousand dollars by now had I kept all my shares from 2006 to now. But not on a risk management basis. I read Enron, Nortel, and others, and no advice ever, anywhere, says you should be so all-in on one company especially your employer. So there's that. Unless, like the top say, 6-12 people in this company of 26,000, you are already fabulously wealthy and can afford to let it ride. 

Also, the decision was taken recently, and quite arbitrarily I would say to reduce the company's matching on the ESOP program. So, I scratch my head when I hear constant talk about the share price, when actions- recent actions- had been taken to limit employees participation therein.

If my income was say 25% dependant on the share price, heck yes I'd care. I don't necessarily think that's a good system, but it sure would get me focussed on the share price. As an employee it's a bit of a cruel wagon to hitch that much of your income to, being as you have absolutely zero control over it, but it happens. As upper management it is de rigeur, and the greatest trick is to pretend everybody benefits, even while you're cutting wages and making work rules worse. Hey we're all owners now.

Contrasted with profit sharing- a great win/win system if there ever was one, but it is now maxed. A great thing. But now, explain how additional profit helps me too? It...doesn't.

In sum, yes it's nice that the market is "recognizing" the plan. As a worker, there's a little bit more to it than that. 

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Zan Vetter;

By almost every measure possible employees are better off working for a stable, competitive, growing company and a steadily rising share price shows a stable, competitive, growing company.  Yes, I know the system is crooked and, yes, I know the workers don't benefit from this as much as the executives and Bay Street Boys but we do still benefit some.  I'm a bird-in-the-hand sort of person.  Given the choice I'd take a larger pay cheque over some promise of future reward but the next best thing is for the company to make more profit.  Our profit-sharing tops out at something like 17.5% (whatever it is) EBIDTAR and the company makes 20%?  So the extra profit goes to paying down debt, buying new aircraft for cash, investing in new technology and executive bonuses - not as good for me short term but still good long term.

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Seeker,  while I would say that a stable, competitive, growing company offers better prospects, we may have to agree to disagree that such company is necessarily  'better by every measure'.

Some very successful mining companies included unsafe working conditions in their business model.  Westray is just one such example.  While I would like to believe that an airline would never intentionally drift anywhere near that end of the spectrum, the reality is that there have been air operators, in Canada, with exactly that approach.

Simply put, competitive and profit measures must exist in tension with equally robust safety and labour systems.  If one of these ropes goes slack, the tent starts to lean toward collapse.

But perhaps we can all agree that a financial mishap is not the only thing that can down an airline.

FWIW

Vs

 

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A rising stock price is a good measure of corporate economic health, but frankly, it's also a benefit on the labour and safety side. The newest aircraft have more built-in safety and diagnostic features. They are less likely to suffer an undetected maintenance problem, and have a high dispatch ratio (once they are well integrated into the fleet). I have a 16 year old car - don't ask - and while it was a trim with all the bells and whistles in its day, it pales next to the safety features in any new mid-sized car today. Even the cheapest models of any manufacturer's mid-sized lineup have more safety features as standard than my car had as options in its day.

You fellows would know more about that than I do. 

However, my feeling for a high and rising stock price is that some day AC might want to issue stock to pay down debt or buy aircraft. This has been an avenue closed to AC for obvious reasons that may open for the first time in, well, forever. It's even better than low-interest debt and allows for holding high cash reserves as security for the next global economic downturn or shock.

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56 minutes ago, Vsplat said:

Seeker,  while I would say that a stable, competitive, growing company offers better prospects, we may have to agree to disagree that such company is necessarily  'better by every measure'.

 

 

Really?  I listed three factors and you point out that I didn't list "safe working conditions" as one of them.  This is simply a matter of definition. I could argue that "competitive" includes being competitive in working conditions.  Anyway, I've gone back and edited my post;  it now says, "By almost every measure possible."

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dagger, look at the accident and incident record in the western world over the past while.  Most of the events are not tied to airworthiness or navigation failure.  It is increasingly a human factors discussion.  I would argue that it's not the hardware that needs to be improved at this point, it is the humanware. The answer is not automation or more technology, at least not yet. 

Since we can't upgrade the physiology (yet), then we have to step back and ask, why are these humans doing what they are doing?  Increasingly, at least from what I see, the causes break down along the lines of poor training (cost control),  tired crews (scheduling with not enough pilots, so cost control again), fuel pressures, so attempting yet another approach at destination rather than divert and risk a fuel emergency (fuel restrictions to reduce the cost of carrying fuel, cost control), ATC aggressive or improper handling, such a slam dunk, last minute side step, over crowding on approach, etc, etc, once again, system cost and optimisation. 

At some point  I hope we can recognise that some of these cost cutting measures are not eliminating the cost, they are simply transferring it off of one balance sheet and onto another. 

I don't want to pick on ATC, but this is an area where there is a clear and increasing divide between how a controller is assessed and what the flight deck experiences.  Getting shoehorned into LGA off an brutal 'squared off' base onto 31, flying an unstable approach over an obstacle rich environment, smoking it on and then cooking the brakes on landing to make a cutoff before the intersection all look normal to the tower because it is what they have become accustomed to seeing, but it looks way different when you are strapped to the vehicle.  It doesn't matter how many toys we have on board.  When the weather is visual and the airport is operating above design capacity,  all of the improvements won't help.  You get Asiana in SFO or any one of the runway events in LGA.  And arguably a bunch of other cases.

But we might be getting wide of the thread topic.

seeker, thanks for clarifying.

Vs

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12 minutes ago, Vsplat said:

dagger, look at the accident and incident record in the western world over the past while.  Most of the events are not tied to airworthiness or navigation failure.  It is increasingly a human factors discussion.  I would argue that it's not the hardware that needs to be improved at this point, it is the humanware. The answer is not automation or more technology, at least not yet. 

 

Wouldn't the worldwide expansion of ADS-B have both economic and safety benefits? Even optimizing long haul routes to shave off a bit of flying time has a positive benefit for safety (i.e. shortening duty time ever so slightly).  And wouldn't new commercial aircraft have the necessary transmitters/receivers? I don't know if the airlines are retrofitting older aircraft with the technology.

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