Air Canada (OTCQX:ACDVF) Q2 2022 Earnings Conference Call August 2, 2022 8:00 AM ET
Company Participants
Valerie Durand – Head of Investor Relations and Corporate Sustainability
Michael Rousseau – President and Chief Executive Officer
Amos Kazzaz – Executive Vice President and Chief Financial Officer
Lucie Guillemette – Executive Vice President and Chief Commercial Officer
Craig Landry – Executive Vice President and Chief Operations Officer
Conference Call Participants
Savanthi Syth – Raymond James
Walter Spracklin – RBC Capital Markets
Konark Gupta – Scotiabank
Jamie Baker – JPMorgan
Kevin Chiang – CIBC
Cameron Dirksen – National Bank Financial
Chris Murray – ATB Capital Markets
Tim James – TD Securities
Stephen Trent – Citi
Fadi Chamoun – BMO Capital Markets
Helane Becker – Cowen
Andrew Didora – Bank of America
Operator
Good morning, ladies and gentlemen. Welcome to the Air Canada Second Quarter 2022 Earnings Call. I would now like to turn the meeting over to Valerie Durand. Please go ahead, Ms. Durand.
Valerie Durand
Thank you, Donna. [Foreign Language]. Welcome and thank you for joining us on our second quarter call of 2022. Joining us this morning are Michael Rousseau, our President and Chief Executive Officer; Amos Kazzaz, our Executive Vice President and Chief Financial Officer; Lucie Guillemette, our Executive Vice President and Chief Commercial Officer; and Craig Landry, our Executive Vice President and Chief Operations Officer. On today’s call, Mike will begin with a brief overview of the quarter.
After management’s overview, we will be available until 9:00 AM for questions from equity analysts after the analysts question-and-answer session, Mr. Kazzaz and Pierre Houle, Vice President and Treasurer will be available to answer questions from Terminal B lenders and holders of Air Canada bonds.
Before we begin, please note that our comments and discussions on today’s call may contain forward-looking information about Air Canada’s outlook, objectives and strategies, which are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. I therefore refer you to our forward-looking statements in Air Canada’s second quarters news release — excuse me, which is available on aircanada.com and on CEDAR.
I will now turn it over to Mike.
Michael Rousseau
Great. Mercy Valerie. Good morning, everyone. Bonjour. Thank you for joining us on our second quarter earnings call today. Air Canada reported strong results for the second quarter, despite operational challenges in the air transport system. Credit for these results goes to our employees. On behalf of the entire leadership team, I want to recognize our incredibly hard work, tireless efforts, dedication and constant professionalism, and safely caring and taking care of our customers in this operating environment.
In the second quarter of 2022 alone, a single quarter, we carried about 70% of the total customers is a full-year 2022 [ph]. This gives you an idea of the depth of where we came from, and all the resurgence where we are seeing an air travel demand. The industry worldwide is facing unprecedented operating challenges as it emerges from pandemic related restrictions. In Canada, we have gone from a near two year shutdown of air travel back to capacity levels close to 80% of 2019.
We prepared well ahead of 2022 for a surge and travel demand. We prudently planned and adjusted our capacity as the summer froze. As much as we shared our customers excitement to see them returned to air travel. In the face of surging demand we might have otherwise tried to capture we stuck to our plan and manage our schedule considerably. But despite all the planning, the increased traffic has created difficulties for all participants in the air transport system, the situation that we’re seeing around the globe.
Rather than our Canada this has had a cascading effect on our own operations. Craig Landry, our EVP and Chief Operations Officer will go into further detail about this in a moment. The entire team of Air Canada is skillfully managing the unchartered waters of pandemic recovery, on top of what comes with operating in the airline industry. Now from a financial perspective, we generated $154 million of EBITDA in the quarter. This is a significant increase from the negative EBITDA of $665 million we reported a year ago.
We have been showing consecutive and year-over-year improvements for the past several quarters. But in the second quarter, it became clear that we are in a strong demand driven recovery. Our operating revenue neared $4 billion in the quarter, an improvement of about $3.1 billion, almost 5x what we recorded in the second quarter of 2021. At the same time, we also control costs effectively despite a steep rise in fuel expense. Taken together, we recorded an operating loss of $253 million for the quarter. Still, it was a much narrower loss compared to the operating loss of $1.1 billion in Q2 of 2021.
We report a positive cash flow from operations and positive free cash flow and that’s the fourth quarter in a row. And we ended the quarter with $10.5 billion in unrestricted liquidity. That said, I want to assure you that everyone in Air Canada is focused on improving our operating performance, which as mentioned relies on many participants in the operating chain, such as airports, ground handlers, caterers, security screeners, customs and air navigation. Every leak in the air transport system must work well for us to succeed. So we must all work together.
At the same time, we the airline had the most direct and continuous relationship with travelers, as before, during and at the end of their journey. We understand, and we feel firsthand the effect that any breaking a chain has on our customers and our plans. The operational instability we saw at the second quarter is of course not at all business as usual for us or anyone else involved. We know this has been a difficult period for some of our customers who are looking forward to a long awaited dream vacation or reunion with loved ones.
We acknowledged the inconveniences and disruptions some of our customers have faced and we deeply regret this. We continue to work closely with our service providers and governments to keep addressing the issues aviation’s facing in Canada and globally. And importantly, we are encouraged by the progress made in the past few weeks, and we expect continuous improvement in the weeks to come.
Thank you. I will hand the call over to Craig now.
Craig Landry
Good morning, Rousseau. I welcome the opportunity to speak with you this morning. As Mike mentioned, the second quarter of this year features some extraordinary operational impacts on our business. So I’d like to take a moment to provide some additional context. The first thing, I’d like to highlight is that in all cases, we view these factors as being temporary in nature, and directly related to the unique challenges of the post-COVID ramp up. We’ve never seen demand increase at such a high rate in such a short period of time, particularly having been at a near standstill for almost two years. The same can be said of the many participants who are all part of the air transport system. These challenges are felt throughout every aspect of the operational delivery chain that supports air travel.
At the same time, while many participants play a unique and essential role in the air transportation system. We recognize that our customers experience these interconnected efforts as a single journey. As Mike pointed out, it is the airline that has the most direct relationship with the customer. We understand the unique role in which that places us and we take that role very seriously. To help illustrate how far we’ve come from and the magnitude of the travel rebound in the second quarter of 2021 we operated 20,603 flights and carried about 1.2 million customers.
In the second quarter of this year. We operated at 84,643 flights and carried over 9.1 million customers. That is an increase of 4x for flights operated, and almost 8x the customers carried for the same time last year. In the second quarter, our operating capacity measured by available Seat Miles was 73% of the same quarter in 2019.
This is somewhat unique when we look at other global markets where travel recovery grew more evenly through 2021 and into 2022. In Canada, it happened in a much shorter period as travel restrictions were in place for a longer period holding back pent-up demand that much longer. That said the operational challenges our industry is facing are not limited to Air Canada or the Canadian market. As we can see very similar operational challenges being faced by airlines in the USA, Europe, and elsewhere.
Still we assumed an increase in demand in the order we are seeing when we developed our 2022 schedule. Yet as Mike mentioned, we prudently planned and adjusted our capacity as the summer approached and managed our schedule conservatively, all while ramping up our operations. Our first phase of preparation began in August of last year, where we saw some significant increases with close in demand, indicating what we could expect for our peak travel period in Q2 and Q3 of this year. Rather than seasonally pause hiring as we would naturally have done after the 2021 summer peak. We double down by recalling, hiring and training on a scale we had never done before throughout the summer and the fall, and then all through the winter period, including through the Omicron wave and when tight travel restrictions were still in place. As a result, and after more than nine months of preparation. We entered the peak summer travel period at close to 90% of our pre-pandemic staffing levels, while prudently planning to operate about 80% of our pre-pandemic schedule during that period.
As we said for air travel to be successful, a wide range of service providers much — must come together, often behind the scenes to deliver services that form a chain. Normally this chain is very strong. However, during this period, this structure that’s successful Air Travel relies on began showing varying signs of unprecedented instability. These effects were primarily driven by resourcing challenges and could be seen in airport security screening, Canada and U.S. border customs processing, air traffic control, maintenance providers, equipment, supply chains, aircraft catering and fueling partners just to name a few.
An additional challenge for us has been a series of mechanical failures at the airport baggage handling systems at some of our key hubs, resulting in bags not reaching our baggage handling agents in time for planned departures. This kind of instability in the delivery chain has a direct impact on our operations. It creates flight delays, flight cancellations, and increased incidences of misconnections and mishandled bags. In turn this creates multiple knock on effects where aircraft and crew are out of position for their next plan site activities, and demand for airport infrastructures such as gates resulting backlogs and congestion. Customers who missed their flights need to be rebooked, and bags need to be reintroduced into the system to reunite with their owners. This collectively results in a higher level of activity than was planned, which itself over time further contributes to knock on effects.
I should also point out that what’s often overlooked is that even given these circumstances, we’re moving as many as 140,000 customers a day safely to where they want to go. For the second quarter, we had a flight completion rate of 96.3% system wide. For our international overseas flights, flight completion was at 99.2% for the quarter. And even with significant challenges we’ve experienced on the baggage handling side, we saw a baggage handling rate of 97.7% for the quarter.
At the same time given the volume of customers we carry. We know that even this level of performance leaves too many customers affected. The second phase of our stability efforts was implemented earlier this year with well received customer initiatives including enhanced notifications new self-serve re-accommodation tools, free same day standby options for earlier flights within Canada and transporter markets and the ability for customers to voluntarily increase their connection time at our Toronto Pearson hub. We also increase our minimum connection times on some flights adjusted our schedule to reduce volume at peak times and refine the timing of select international and transporter flights to provide additional operational flexibility.
And more recently, in the third phase, we proactively removed an average of 154 daily flights from the schedule. This represents about 8% of our scheduled flights system wide for July and August. The emphasis was on easing pressure at our Toronto and Montreal hubs at peak travel times. These reductions were undertaken over and above the internal efforts taken by Air Canada and were designed to address the instability of the overall air transport system in the peak summer travel period. They were also intended to drive meaningful staffing, relief and airports to increase narrow body overnight availability for maintenance to improve startup performance and to facilitate aircraft catering and grooming activities.
And we’re not stopping there. Our operations control — operations — systems operation control team is collaborating with other key branches to focus on key flights during peak connection banks. We are reviewing certain ancillary policies and services that can ease our operation in the immediate term. As a result of these measures, and the increased focus and support being seen everywhere through the air transport system, we’ve already seen improvements on all key operational metrics.
To close as Mike said at the beginning, this has not been business as usual at Air Canada, and we remain confident these factors are temporary in nature. We can also see that despite our careful planning and subsequent mitigation efforts, we did not achieve an acceptable level of operational stability. And for that we apologize for our affected customers and employees. I can assure everyone, however, that our highest priority throughout the company has been and remains to work with all participants in the travel journey to remove any remaining instability and to return our operations in pre-pandemic levels of stability.
Now over to Lucie for commercial updates.
Lucie Guillemette
Thank you, Craig. And Bonjour, good morning everyone. Mike spoke to our operating revenues. But I’ll begin by saying that these recovered to about 84% of those in the second quarter of 2019. As Craig described Air Canada have one of the steepest ramp-ups when compared to any major network airline in the western world. What’s really important to call out is when we compared to pre-pandemic times, even though we operated less capacity of 73% of the same quarter in 2019 to be exact. Our passenger revenues were 80% of the second quarter of 2019.
Also 2022 second quarter advance ticket sales reached 94% of those in the same quarter of 2019. Thanks in part to a very strong revenue performance in the month of June, Q2 2022 passenger revenues soar to over $3.4 billion. Average fares across the system were up 12% in Q2 versus Q2 2019 and 13% for June alone, which reflects fare increases we affected in relation to the higher price of fuel. When compared to 2019, you will recall at the base period was severely impacted by the disruptions caused by the grounding of the MAX 737. Route capacity in 2019 pushed passenger yield up to unprecedented levels. Given this comparison, we’re very proud of our revenue results.
On the international front, results exceeded our expectations. At Investor Day, we mentioned the importance of six freedom transit traffic. June 2022, represented a record month in the amount of absolute six freedom customer in Air Canada’s history, and we will continue to focus on further growing this traffic segment. And although China and Hong Kong remain relatively closed, we continue to be encouraged by our Pacific results, especially in Australia. And while the domestic market was very competitive, our extensive remaining network gave us an advantage in all markets and communities we serve. If we look at the second quarter of 2019, our six freedom traffic between the U.S. and Atlantic accounted for approximately 5% of our total revenues. In Q2 2022, it was 6%. We saw the biggest demand coming June where this grew from 7% of our system revenues in June 2019 to about 10% in June 2022.
Additionally, in June, the Canada transit [indiscernible] [0:16:54] market was within 91% of the revenues produced in June 2019 and domestic was 92% of June 2019. June 2022 showed the fastest acceleration towards 2019, we’ve seen since the onset of the COVID-19 pandemic. Cargo revenues declined by 16% from the second quarter of 2021 due to yield normalization and less cargo only flying in the Pacific region. This was partially offset by volume growth and revenue gains and other reasons.
We now have two Boeing 767 freighter aircraft in service and are expecting seven in service by the end of 2023. In July, we repurchased two new Boeing 777 freighter aircraft with deliveries expected in 2024. We also used our freighters to deliver aid and medical supplies to support Ukrainian refugees. Over 100 employees volunteered to support this mission. We continue to experience very strong Aeroplan performance, the second quarter of 2020 beat most record set in Q1 with several KPIs, setting new all-time eyes.
In the first quarter, we had seen our highest ever new member acquisitions and we surpassed this again, with close to 835,000 new enrollments in the second quarter. We also saw higher spend and solid acquisition on our co-brand card portfolio, which helps deliver a 50% lift in gross billings from points sold in the second quarter of 2019 despite the effect of lower interchange rates from 2020.
Air redemption bookings and yields were also at an all-time high. Finally, our new retail partners continue to just drive strong engagement, while additional leading brands seek to establish partnership arrangements with Aeroplan. Now looking ahead, as I discussed earlier, demand was solid in June, and this is continuing into the third quarter. At this moment, we are not seeing any noticeable impact from market forecast of a possible economic slowdown. Our advance bookings going into Q4 remain strong, with book load factors projected to be in line with 2019 levels. In fact, in many Su and leisure markets, we are currently running ahead of 2019.
For the third quarter, we plan to increase our capacity to approximately 79% of third quarter 2019. For the full-year of 2022, we expect to operate approximately 74% of 2019 capacity levels. Premium traffic also remained strong focus more on premier leisure travelers. We started seeing signs of recovery in corporate travel in March of 2022 and this accelerated through June, one from close to 40% of 2019 levels to over 60% by the end of June. We expect the corporate traffic to continue its rebound post Labor Day building on the strength we saw in June. Despite the challenges, Craig spoke of, we continue to focus on strategic initiatives to bolster our future results.
We’re pleased with our recent announcements regarding our joint venture on transborder markets with our longtime partner United Airlines. And we’re also looking forward to our new Co-Chair arrangement with Emirates. This winter we will also commence service to Bangkok and restore our services to Mumbai, and Lima. And now on to Amos for more updates.
Amos Kazzaz
[Foreign Language] Good morning, everyone. First, a quick financial overview of this quarter. It goes without saying that such a renewed interest in traveling increased our flying and therefore resulted in increases in nearly all line items. Most importantly, from a unit economics perspective, our PRASM or unit revenue increased 59% and our adjusted CASM improved or in this case decreased 68% in the second quarter of 2022, compared to the same period in 2021.
Managing these metrics is a key focus as we work to restoring our EBITDA margins. Fuel expense of $1.5 billion increased $1.2 billion due to 116% increase in the price of jet fuel, coupled with a significant increase in flying seeing this quarter. Fuel expenses represented about 53% of the total OpEx increase. We are encouraged by the recent decline in the price of fuel, and as always continue to actively manage this line item closely. Wages, salaries and benefits of $749 million increased $252 million, or 51% from the second quarter of 2021 due to a 79% increase in full-time equivalents.
This was anticipated with the recall of 1,000s of our employees, as well as the recruitment we’ve undertaken to support the increase in flying volume year-over-year, including the planned schedule for the remainder of the year. For 2022, we now expect adjusted CASM to be about 15% to 17% above 2019 levels. The variance to prior guidance is mainly due to an increase in the number of customers carry, which translates into higher passenger service and distribution costs.
To a lesser extent, it is also attributable to an increase in wages, salaries and benefits. And now turning to our fleet. At the end of the second quarter, 30 Airbus A220-300 aircraft had been delivered, with three aircraft yet to be delivered by the end of this year. Also 39 MAX 8s had been delivered, with one to be delivered in the third quarter, completing our fleet of 40 Boeing MAX 8s.
As for liquidity, we ended the second quarter with unrestricted liquidity of $10.5 billion, up from $10.2 billion at the end of the prior quarter, which includes $972 million in undrawn revolvers. In the second quarter, we generated $441 million in free cash flow, which is an improvement of just over $2 billion from the same quarter in ’21 and reflects the higher net cash flows from operations and strong advanced ticket sales.
We continue to require an estimated minimum unrestricted liquidity balance of $5 billion to support our ongoing business operations, which also includes a buffer to manage cost risks, and unplanned disruptions. Minimum unrestricted liquidity includes funds available under credit facilities. I’ll now pass it back over to Mike.
Michael Rousseau
Thank you, Amos. The current challenges facing the entire global airline industry including Air Canada are certainly the focus of our immediate attention. As you heard from Craig, we are working with our partners to resolve the issues affecting our industry. This will allow us to deliver our standard of customer service once again on a consistent basis. At the same time, we also know we must run our business with a view of the future. This means that we continue working to position ourselves in a highly competitive, industry leading in the post-pandemic global airline sector.
It evolves executing our long-term strategy, investing for the future and making new plans to take our business to the next level. As of quarter-ended, we made two significant commercial announcements that Lucie spoke about. One of these was the joint business arrangement with the United Airlines. The agreement will offer customers more choice, greater convenience, and enable us to better optimize our hubs and schedule. It will also strengthen our leadership in the all-important transborder market and broaden our global network connectivity. We also agreed to work closer together to advance our sustainability objectives. The second is our strategic partnership with Emirates.
We’re still finalizing this arrangement, but we intend to establish a codeshare relationship later in 2022. This two will mean more choices and convenience for our customers and further extend our global reach. International expansion is one of our key priorities coming out of the pandemic, it is also why we have selectively added new destinations within our network. In addition to new service to Bangkok and returning to Mumbai and Lima, we have restarted services to Australia and this winter are returning to New Zealand.
And for our Western Canada customers, we’re launching a new service between Vancouver and Miami, as well as between Edmonton and Cancun. Similarly, Air Canada cargo extended its reach in the quarter with new services from Halifax and to Madrid. Our cargo operation also continues to innovate in other ways to better service customers, including innovative digital offerings for a more seamless, user friendly experience. In the quarter, we won five awards for excellence in leisure and lifestyle travel, which is important given leisure travels leading the recovery.
Another significant recognition came when Aeroplan won two Freddie Awards, which recognize our loyalty programs at best for redemptions and as the top trending program. Aeroplan remains key to our company for customer acquisition and retention, and strategy to increase Air Canada’s appeal through strong partnerships took another step forward. With a nearly a dozen new or expanded agreements in the works during the quarter, many of which will be announced in the current quarter.
An important milestone we’re celebrating is the 10th anniversary of the Air Canada Foundation. Apart from the good, it has done helping 10s of 1000s of children over the years. The foundation also reinforces to Air Canada’s greater commitment and leadership to ESG. In this respect, another significant development was the recent announcement that we will work with Airbus and select other carriers on advanced carbon capture technology. If successful, this will help contribute to Air Canada’s long-term goal of achieving net zero emissions. All of these and the other actions we have taken during the quarter are ample proof that Air Canada is set to rise higher in a post-pandemic world.
While contending with immediate challenges, we have maintained our focus on the long-term goal of being an airline as agile, resilient, and the industry leader in all aspects of our business. And with that, I’ll return the call to Valerie Durand.
Valerie Durand
Thank you, Mike. And thank you all for joining us today. [Operator Instructions] In the interest of time, we kindly ask that you each limit yourself to two questions or one question and one follow-up. Should you have additional questions, we invite you to contact us at Investor Relations. Over to you, Donna.
Question-and-Answer Session
Operator
Thank you. We will now take questions from the telephone lines. [Operator Instructions] And the first question is from Savi Syth from Raymond James. Please go ahead.
Savanthi Syth
Hey, good morning. First question just could I ask you about kind of the cargo business and how that’s going and particularly as curious about the strategy of kind of getting new 777 freighters in terms of both new versus kind of using converted as well as kind of introducing a second fleet type at operation which I would think increases complexity and costs?
Amos Kazzaz
Well, thanks. Good morning, Savi, it’s Amos. Thanks for the question there. So yes, as you saw we did announce the two new 777 freighters, what those 777 freighters do is as we see the demand from our customer segments and markets is the ability to carry additional tonnage. So right now as you look at a 767, it carries about 56,000, 56 tons — 56,000 tons of cargo and a 777 has about treble that capability. But more importantly also from a size and dimension perspective into the market.
Additionally, so we see sort of strong demand that really the growth in the market that we really need the additional capacity that a 777 offers. And yes, it does add some additional complexity but we do have 777s in our base fleet. So it doesn’t really introduce a new pilot type if you will and new introduction. So we can use the efficiencies that we have in our current 777 capabilities from a maintenance perspective, operating perspective, pilot, and so forth. And certainly from ground equipment, and really sort of, it doesn’t really require any additional investments that would add complexity of introducing, let’s say, a brand new fleet type if we were to go and buy a 747 freighter, for example.
And from a perspective of return, we certainly looked at this, obviously, ownership cost is much higher as our approach to this business had been with 767 used on the aircraft, if you will, at low ownership costs. But we believe the return that we can get on the 777 certainly justifies the investment.
Savanthi Syth
That’s helpful. And if I might ask, secondly, just have you seen any kind of pilots leaving in a bigger way from Air Canada to the U.S. kind of using that EB-2 employment visa? I was just kind of curious, I know, there’s no risk of having the same issues that you’re having in the U.S., but I was wondering if there was any risk of some of the issues here being spilling over to Canada?
Michael Rousseau
Savi, good morning, it’s Mike. No, we’re not seeing any attrition of our pilot base to U.S. or any other country. We still are an unbelievably attractive employer for pilots. And so we do not face the challenges, some of the U.S. carriers or other carriers around the world facing.
Savanthi Syth
Got it. Thank you.
Operator
Thank you. The next question is from Walter Spracklin from RBC Capital Markets. Please go ahead.
Walter Spracklin
Thanks very much, operator. Good morning, everyone. So I guess my first question is on competition you — we’ve heard that WestJet now is retrenched to the west and has kind of stopped taking 787, new delivery or 787. Just curious how that is impacting how your capacity rolls out, both internationally and domestically, whether the — whether you’re rethinking how you’re rolling out domestic? And are you taking advantage of how you’re rolling out international given west shots move there. And related to that, obviously, as Porter’s expansion with their jet purchase program with a focus on the east? And does that — also have any implications on how you’re coming out with your capacity plans over the next couple of years?
Michael Rousseau
Good morning, Walter it’s Mike. It’s always difficult to have these types of discussions on competitive environment. Certainly, we’ve watched very carefully and analyze both WestJet moves and Porter’s moves. It doesn’t change our strategy. We are expansion international will continue. We believe we have a leading product into the international markets. And as well as domestically, we’ve got a great fleet with 220s and maxes and we regional. And so we will continue to compete very, very effectively with against both WestJet as they move more capacity to the west.
And as Porter as more capacity into the space. So again, like any competitor, we’re watching what others do in the marketplace. But we’re very comfortable with our expansion plans, and how we compete in the market.
Walter Spracklin
Okay, that’s great understanding the difficulty in discussing that on a public call for sure. Second question here on the challenges that you’re facing from an operational standpoint, in the recent weeks and months? I know, it’s easy to point the finger at Air Canada, but I know it’s not, it’s certainly I think the ecosystem of your overall the travel network that you mentioned is really a play here. And by extension, while it’s not certainly not all your fault, it’s also not under your control on the rebound or the improvement of it. How much risk do you consider to be that if others outside of Air Canada — other of your partners outside of Air Canada, I mean, you’re the infrastructure the customers, players in the custom side, security lines and so on. If they’re not able to improve their level of service. How much does that put at risk your own plans for this year and next year in terms of growth growing back the capacity toward your prior pandemic levels?
Michael Rousseau
So, Walter, we don’t see much risk at all, because we are working very, very closely with all those partners. And we know they’re deeply engaged and deeply committed to restoring collectively the same service level that we had at least for 2019. If not improvement. We’re working very, very closely with all those partners on a constant basis looking for solutions. Again, that may, and hopefully, we’ll improve the performance levels as we go forward. It will take some time. However, I’m not. And we’re not as a leadership team concern given the engagement and the commitment from all our partners, including our Canada obviously to work together to restore the service levels.
And, again, Walter, as Craig said, and I said, I think in our comments, we are seeing improvements in operational metrics right now. Baggage is improving, on-time performance is improving, cancellations are being reduced. And that is a collective effort that we’ve been working together over the last X number of months to ensure that we can deliver consistent service level to our customers.
Walter Spracklin
It’s very encouraging. Okay, thank you very much. I’ll just get back in queue.
Operator
Thank you. The next question is from Konark Gupta from Scotiabank. Please go ahead.
Konark Gupta
Thank you, and good morning, everyone. So my first question is on the booking. I just wanted to understand what sort of the mix you are seeing between travel credits, Aeroplan points and cash purchases, as well as any color on the booking curve.
Lucie Guillemette
Hi, its Lucie. Let me start maybe I’ll just expand a little bit on the comment I made in some of the opening remarks. From the corporate perspective, we’re now looking at approximately 60% of what we would have had in 2019. So the mix of business and premium traffic other than from leisure premium is increasing. With respect to redemptions, we have a golden opportunity here because we have to means for customers to be able to access our inventory when they book redemption. So we are seeing a higher mix of Aeroplan members redeeming for not only leisure, but across the network. But I would say that roughly 80% of our revenues are generated by non-Aeroplan bookings.
Konark Gupta
Okay, that’s great, Lucie. Thank you. And then maybe just a broader question, perhaps for Mike, in terms of the culture. You’ve been hiring a lot of people and recalling a lot of employees, obviously, and media outlets, as we all know, and been writing about how low some of the airlines frontline employee morale is due to frustration and challenging public. Obviously, call center wait times have been long, et cetera. How do you motivate employees in these times to maintain the culture and the brand?
Michael Rousseau
It’s a great question. And we’re very aware and sensitive to that issue. So we’re doing a number of things to help all our employees, including the frontline employees. And we just did an engagement study or a survey and our engagement levels. So that’s a hopefully a good reflection of culture. We’re still very strong compared to 2019. And so that was encouraging that that one we have, and we know we have incredible employees. And to the initiatives we’re putting in place, whether they’re bonuses, or pizza, or just walking around management, and a ton of communications from the leadership group are working to the — to what we expected.
Konark Gupta
Yes, look good, Mike. Thank you.
Operator
Thank you. The next question is from Jamie Baker from JPMorgan. Please go ahead.
Jamie Baker
Hey, good morning, everybody. So just a quick question on the air traffic liability. It increased materially from the first quarter to the second to what appears to be a record and we’ve seen this elsewhere. Question is whether this is solely indicative of future demand. There were no accounting changes, breakages assumptions in there that changed, just confirming that?
Amos Kazzaz
So good morning, Jamie, it’s Amos. No, it’s really it’s the demand. And there really no other accounting changes or any changes in breakage or any sort of assumptions that sort of changed with that. I would say there was probably one other aspect that that was also driving the increase, or ticket light, air ticket liability or ticket sales is essentially is yields are higher as well. So that is also contributing to the increase in what you see there, what’s on the balance sheet.
Jamie Baker
And would you forecast another build from the second to third quarter, which would be a bit unusual? Or are we at the point where we should sort of revert there begin reverting closer to what the pre-COVID trend look like for this particular metric?
Amos Kazzaz
Yes, and I think that’s a safe assumption there, Jamie. I don’t think it’ll build beyond sort of what we see here. And it’ll just more revert back to more traditional has changed from Q2, Q3, into Q4.
Jamie Baker
Okay, that’s perfect. Thank you very much.
Operator
Thank you. The next question is from Kevin Chiang from CIBC. Please go ahead.
Kevin Chiang
Hi, thanks for taking my question here. Lucie, you mentioned six freedom traffic had a record month in June. I guess I’d be interested in what you’re seeing, as you look up at the balance of the year in terms of six freedom traffic, Pearson and Trudeau have on some negative press in terms of what’s happened with those two airports? And then maybe just on a bigger picture, just what does the United relationship with a deepening relationship do in terms of increasing of six freedom revenue opportunities?
Lucie Guillemette
Okay. So maybe I’ll take the first question with respect to six freedom. So as you know, we know for several months, we’ve been speaking about the focus that we have here to grow our presence in this segment. So what we’ve seen in June as a record, I think we also have confidence that as we move forward, set aside seasonality a little bit here. We will still be able to produce much better numbers on the six freedom in front that we had in 2019.
But I think, we’ve unlocked some opportunities here, that relatively speaking compared to this summer, it may not be as large. But regardless, I think our presence there is going to be much better. There’s no doubt that with some of the cancellations that we observed in some of our transport or markets, it did impact our six freedom traffic. But again, we view this as temporary. because we are confident that some of those issues, will get corrected in the short term. And the reality of it is the market in the United States is so large, there’s opportunity for us to continue to grow in this segment. So, there’s one thing that we’re really pleased about for this quarter, is how we were able to really unlock some opportunities for ourselves in the U.S.
On your second question regarding the joint agreement with United Airlines. This is really for the transporter sector. But the halo effect of that is, as we work better and closer with United in terms of the scheduled design, April, of course, provide more transporter sign, it will provide a better schedule. And the halo effect of that will be that we may have a better schedule to offer for six freedom. We have — we may have more markets that we’ll be able to offer. But the JV is really for transporter, keeping in mind that we have the joint venture with United and Lufthansa for the Transatlantic Market.
So the six freedom sector is covered under the joint venture that we have with United and Lufthansa. So overall, for six freedom, I think we’re in a very good place we’re very pleased with these right, these numbers, but we’re also very excited about the future.
Kevin Chiang
That’s very helpful. And then just a follow-up from an earlier question just on the triple seven freighters is any change in your broader cargo strategy as you bring on these bigger aircraft that can fly further, obviously take on more capacity. Does it change what end markets you’re pursuing? What are some of the routes that you’re contemplating today versus maybe six months ago at the time of your Investor Day?
Amos Kazzaz
Yes, thanks, Kevin, its Amos. Your right. I mean, one of the things that certainly with the 767 its range limited, and certainly there’s a big market in Asia, that we serve right now through belly space, and through the schedule, but we see that as really as a growing opportunity. So the 777 is really enabled us to round out the network. And from a range perspective and lift capability.
Kevin Chiang
Perfect. That’s it for me. Thank you.
Operator
Thank you. The next question is from Cameron Dirksen from National Bank Financial. Please go ahead.
Cameron Dirksen
Yes. Thanks very much. Good morning. I just wanted to come back to the United Airlines agreement. I just wonder if you can go into a little more detail on what sort of the incremental changes are with your relationship with united with this new agreement? I mean, you mentioned some scheduled design improvements. But you’ll what else are you able to do with this agreement now that maybe you weren’t doing previously?
Lucie Guillemette
Okay. So, in the current agreement, with ATI with antitrust immunity, we were able to coordinate on schedule, and to coordinate on price, of course, with the exception of the two carve out markets that that exist. But in the new agreement, we will be sharing in the risk and in the rewards. So in the future, you can expect to see a schedule that’s more optimized, in the current context, at times, we may have found ourselves in a situation where we had wingtip to wingtip flying or the schedule wasn’t necessarily optimized for transporter.
But the fact that we go into an agreement, where we’re actually going to be sharing some of the revenues and some of the risks, it will really allow us to be able to expand, which means, perhaps new markets, more flying, more choice more option for customers. And in this new agreement, you will see things that will make the offer better also for customers. In the current platform, we don’t have, for example, one to one class mapping, which means that at times customers will find these links between Air Canada, and United, these are all things that we’re going to be able to do under the new agreement, which A will make it better for us to be able to maximize revenue, so it would be good for both airlines.
But at the same time, it will also be good for customers. And of course, we’re fully integrated in terms of our redemption programs. But certainly this, this new joint venture will allow us to really broaden the reach that we have on the transporter routes.
Cameron Dirksen
Okay, and if I could just ask the base about maybe then I guess, the regulatory, I guess, approval of this? I mean, has anything changed on that front? Because I know, in the past, there has been some issues from the regulator on the transporter JB you tried to do in the past? I’m just wondering, what has anything changed? Or is this just a kind of agreement that’s designed to fully comply with the existing rules?
Lucie Guillemette
No, no, nothing has changed. I mean, it’s, we still have some of the carve out markets that were part of the agreement with the Canadian Competition Bureau. And now the joint venture is approved for a revenue share model. But there’s nothing different.
Cameron Dirksen
Okay. Well, that’s helpful. Thanks very much.
Operator
Thank you. The next question is from Chris Murray from ATB Capital Markets. Please go ahead.
Chris Murray
Thanks, good morning folks. Maybe turning back to your cost guidance, and just trying to understand a couple of things. You talked about CASM-ex but you also talked about being able to get back to that 8% to 11% margin, can you talk a little bit about your some of the cost impacts you’re facing, and your ability to offset that with yield right now, just trying to try to dovetail how all this kind of moves through the balance of the year?
Amos Kazzaz
Good morning, Chris. It’s Amos. So look, in terms of the guidance, certainly we had a slow start to the year with Q1, we had Omicron sort of facing us. So it was a slow ramp-up, second quarter, as you’ve seen sort of the results here. So, as you can see from what we’ve been able to do in terms of yields, and what we’re covering in terms of fuel that we’re confident, and we’ve confirmed our guidance on our margins.
So certainly the last half of the year, second half of the year will be when we make it all up, if you will. And so in terms of getting into line items, specifically or what’s driving that, the large items as I said in my commentary was the additional traffic, so all of various passenger related expenses, distribution, so forth, salaries and wages, and really all the lines that you see they are really incorporated in that CASM-ex guidance of 15% to 17%. So getting down into line by line basis is probably not very helpful at this point.
And I think it’s just all factored within what we have guidance, both for margin, for the full-year and for CASM-ex.
Chris Murray
Okay, and then just one quick question on the 777 purchase, just to confirm, so are these going to be like brand new aircraft coming from Boeing, are these new aircraft to you that you’re going to convert and get the hauls either from your own fleet or from a third-party fleet?
Amos Kazzaz
Now, these are brand new off the production line into our fleet, freighters, 777s are brand new into the fleet, they are not, any of our 777s converted, et cetera. These are factory fresh.
Chris Murray
All right, thank you very much for taking my questions.
Operator
Thank you. The next question is from Tim James from TD Securities. Please state your full name and proceed with your question.
Tim James
Thank you. That’s myself. It’s Tim James from TD. Good morning, everyone. I guess my first question probably for Lucie here. I’m thinking long-term. I know we’re on the process of normalization here. There’s so few things to fall into place on the international travel scene in particular. I’m wondering as you look out and from what you can see today, do you think there are any differences in the opportunities that Air Canada has in international travel relative to the way the world looked in 2019, before the pandemic, if you went back and kind of looked at your route plan, your network plan pre-pandemic?
Would it look any different today, just based on the way, the travel recovery is taking shape and then maybe it’s a two part question, if you could talk about not only from a geographic perspective, but also from a fare bucket perspective, as well?
Lucie Guillemette
For sure, the network looks a little bit different than even looking ahead may look a little bit different. And there’s a couple of reasons for that. One, we know that post pandemic, certainly the VFR market, or the leisure markets have rebounded much quicker. And as a result of that, we did introduce some routes post-COVID that we intend to keep. And if you look, for example, at the announcement that we recently made to work closer with Emirates, this is another demonstration of an opportunity here for us that perhaps in 2019, we would not have contemplated, but the fact that we can grow Dubai and have access to several markets, where there are high immigration demand from Canada, those are all examples of how we are adapting the network with the new reality.
India is another one, where we plan to expand, but the answer to your question would be yes, the network is a little bit different. Now, keeping in mind that there are many, many markets that are core, we have solid relationships with, as we mentioned earlier, United and Lufthansa. So if you look at Europe, there are core markets there that we will continue to serve. But there’s no doubt that as we move forward, we’re looking at opportunities to get into markets that perhaps in 2019, the opportunity would not have been there. Bangkok is another one that we’ve just announced. And there are many like that, there are many like that.
Tim James
Great, thank you. And Lucie from your comments, is it fair to assume that if we kind of think of two to three years and from Air Canada’s kind of view of the world at this point, then that a greater percentage of revenue will come from VFR market from the leisure market relative to corporate and business cab and travel?
Lucie Guillemette
The corporate like we’re confident that the corporate demand, I mean, whether it’s 2023 or early 2024, we expect that the corporate revenues will return and keeping in mind for us at Air Canada, corporate is by and large and large part within travel within North America. There’s a smaller content of corporate traffic on international routes, the core of corporate versus domestic, where some international point of view and as it changes over time for sure, there will be opportunities for us to be able to grow into some of those markets.
Tim James
Okay, and then I guess my second question, I’m just wondering if Air Canada is able to differentiate at all between normal kind of recurring leisure travel at this point in the recovery and any that might be travel that was delayed or would have otherwise occurred during the pandemic. And I’m just trying to get a sense for if you think about or if you believe there’s any material bump in demand right now that that maybe is not recurring going forward, but is kind of, working its way through the system because it was delayed, or maybe there’s just extra demand as a result of the last couple of years?
Lucie Guillemette
I think, probably what we’re seeing now, there’s no doubt that there’s a large pent-up demand here. But as we look to the future, we believe that demand will come back, leisure travel from Canada to the Sun for example, or to the Caribbean in the winter, that will remain solid, there’s no doubt now that there’s a bit of shift. But we don’t have concerns that once this has flown, that there’ll be a demand shortage. And certainly our advanced bookings don’t indicate that.
And we also spend a fair amount of time working on demand forecast model to help us assess where the next opportunities are, but at this point in time, we certainly don’t believe that, that this demand is just pent-up and that we’re going to face issues in the future.
Tim James
Okay, that’s very helpful. Thank you.
Operator
Thank you. The next question is from Stephen Trent from Citi. Please go ahead.
Stephen Trent
Good morning, everybody. And thanks very much for taking my question. I actually just had one, it intrigued me that you guys are doing the agreement with Emirates. And you talk to all about your Six Freedoms strategies going forward, as Air Canada ever consider going for a minority investment in a foreign carrier, as we’ve seen with the U.S. majors, and some of the Middle Eastern Airlines given the significant operational dislocation we’ve seen in the industry over the last two years.
Michael Rousseau
Good morning, Stephen. It’s Mike. That’s a real loaded question. It’s not our priority. Let’s say, it’s not our priority. We’d rather spend our capital on investments that are closer aligned to our strategic plan that we’ve laid out. And so obviously, we look very carefully at capital investment and what return is. And we although, we’ve explored that scenario in the past, we have not come close to stepping into it for the reasons I just spoke about that we believe our capital is better spent on new aircraft and investment in products, that makes us a stronger brand.
Stephen Trent
Okay, very clear. Thanks for taking my questions. I’ll leave it at that.
Operator
Thank you. The next question is from Fadi Chamoun from BMO — Fadi Chamoun very sorry, please go ahead.
Fadi Chamoun
Yes, good morning. So I guess you gave us some guidance and EBITDA margin and we came back into some numbers here for but I was curious on the PRASM side, it feels like you had several rate increases through the second quarter like, is there a way we can figure out or understand what would have been the Passenger RASM growth kind of in June or kind of exiting the second quarter versus what you started off with in kind of April or early May timeframe?
Michael Rousseau
Yes, Fadi hi it’s Mike. So as Lucie talked about June was our strongest month of the quarter. And so I think you could take from that, that there was an acceleration of PRASM throughout the quarter, with June being stronger month reflecting all the initiatives and other aspects that we put in place.
Fadi Chamoun
Okay, and maybe one follow-up question on this demand story and equation. I mean, you spend a lot of time thinking about the demand and kind of starting up for it and preparing for it. If we end up due in kind of slower economy or even a mild recession next year. Do you think that this kind of both pandemic recovery can still drive RPM and drive capacity higher going to 2023? How are you thinking about kind of this macro outlook and the challenging story on the economy side versus how you’re kind of planning for the next 12 months, not only for the next three or six months?
Michael Rousseau
Yes, Fadi, it’s Mike again. Again, as Lucie said, we’re not seeing any evidence in our advanced bookings, that there’s a slowdown coming. But like everyone, we read the newspapers, we listen to the economists, we’ve run recession scenarios, mild recession scenarios, and we’re quite comfortable with our plan going forward, including our agility to ramp-up or ramp down depending. Obviously, unfortunately, over the last 20 years, we’ve had some practice doing this. And so we’re quite comfortable as a leadership team that we can manage any environment that comes forward.
But again, we’re not seeing any evidence of a slowdown. And your theory is interesting whether the pent-up demand continues and pushes through a possible model recession, that that may be the case. And but I assure everyone that we are ready for any scenario that exists to take advantage of.
Fadi Chamoun
Okay, thanks. Appreciate it.
Operator
Thank you. The next question is from Helane Becker from Cowen. Please go ahead.
Helane Becker
Thanks very much for squeezing me in. So just on the 84,000 flights that you were able to do in the second quarter, how should we think about that going forward? Is that kind of the level you’re going to want to do? Can you do more than that? Is that stretching it anyway? And you should think about doing less, because that’s a pretty big increase, right, from 2018. And maybe the number of employees hasn’t increased as much. So just wondering how we should think about that, in terms of growth, maybe one year out as opposed to maybe one quarter out?
Craig Landry
Well, Helane, it’s Craig. I mean, I’ll sort of cover from a bit of an operational perspective. I mean, I think the phenomenon we saw was a little bit of a delay in terms of the timing of some of the resources we needed to come in versus the acceleration of the ramp-up we saw in the second quarter. And that kind of led to some of the challenges. But as the quarter finishes, and as Mike mentioned earlier is as we come out of the second quarter and are starting to look ahead, we’re feeling a lot more resilient in terms of meeting the operational demands versus what the commercial demand is.
So, on a going forward basis, we don’t view, we will follow the commercial demand and the capacity that’s deployed, and we don’t anticipate from an operations perspective, there being any constraint around that.
Helane Becker
That’s great. Thanks. And then if I could just ask one follow-up as Amos you talked about having free cash flow. How should we think about the balance sheet and liquidity? You mentioned the minimum level that you want to have and free cash flow deployment in maybe 2023 as opposed to maybe again, next quarter?
Amos Kazzaz
Yes, good morning, Helene. So as you know us, our priority is still on cash and liquidity, right now is de-levering. And we’re doing that through essentially purchasing aircrafts with cash. And then funding our capital plan, which we’ve seen sort of includes these products, investments, aircraft investments, specifically, and other CapEx items. So those are still really our priorities. And then, we’ll continue to look for opportunities, again, as to de-lever, as we look at cash and cash on next year and continue to recovery. So and our goal, as we stated back in Investor Day is to get the leverage ratio one by 2024 and into 2024. So we continue to sort of look at the capital priorities in that order.
Helane Becker
That’s very helpful. Thanks, Amos.
Operator
Thank you. And the next question is from Andrew Didora from Bank of America. Please go ahead.
Andrew Didora
Hi, good morning, everyone. I’ll keep it brief here. Lucie, I appreciate all the color that you gave with regards to kind of fares in your booking commentary. Would you be able to provide give us the revenue cadence across the month in 2Q, so we can get a sense of what the trajectory was like?
Lucie Guillemette
Yes, actually, give me one second here. Of course, the little slide I’m looking for here. From April to May, so if we look at within the quarter, the progression on revenue from April to May was in the 15% range. And if we look at from May to June, we were almost in the 25% to 30% range. So the ramp-up for June, the results for June really significantly and drove the quarter.
Andrew Didora
Got it and just one point of clarification, did you say that June fares were up 13% or 30%? I couldn’t quite understand.
Lucie Guillemette
The average fares were up to 15% at the system level, not 30, 13.
Andrew Didora
Okay, thank you very much. Appreciate it.
Operator
Thank you. There are no further questions at this time, I’d like to turn the meeting back over to Ms. Durand.
Valerie Durand
Once again, thank you very much for joining us on our second quarter call today. Should you have any additional questions, we invite you to contact us at Investor Relations. Thank you and have a great day.
Operator
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.
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