CIBC: Investor day previewOur Conclusion
AC is hosting an Investor Day on December 17 where we expect the company to release its 2025 guidance and three-year outlook, provide an update on its revenue growth levers, and provide its views on the competitive environment. With this note, we have also adjusted our model to reflect our updated fuel and FX assumptions as well as rolling out our 2027 estimates. We maintain our Outperformer rating and $28 price target.
Key Points
Financial Target Expectations: We expect AC to release its three-year financial targets (2025-2027). We expect the following:
• We expect AC to release its 2025 outlook at its Investor Day. We expect the company will guide to EBTIDA of $3.5B-$3.75B, ASM growth of 4%- 5%, and adj. CASM increase of 3%-4%.
• Annual EBITDA margin moving to 16%-17% by 2027 with a path toward high-teen percentage. This assumes adj. CASM is up ~4% from 2024 levels and ASMs reaching 2019 levels by 2026 and growing by an incremental 3%-4% in 2027.
• Cumulative FCF generation of ~$500MM-$1B. We assume 20%-25% of AC’s 2026/27 capex will be financed through sales leaseback.
• Commitment to keep its leverage ratio between 1.0x-1.5x
Other Items We Expect To Be Discussed:
We expect AC to provide an update on a number of its revenue levers including growing its premium revenue, how corporate travel is trending, new membership targets for Aeroplan, and its sixth freedom strategy. We also expect additional colour on how AC’s fleet investments will impact its cost structure and revenue opportunities. For example, the addition of the A321XLR provides AC the flexibility to match capacity with demand without being forced to deploy widebody aircraft on long-haul flights. It also should allow AC to access more markets throughout the year which will improve the seasonality of AC’s earnings. With the 787-10 also being added to the fleet, we look for AC to discuss how it plans to utilize this larger widebody and any colour on whether the company plans to have older widebody aircraft exit the fleet.
Active On The Buyback:
Since AC launched its NCIB, we estimate that it has repurchased ~12.2MM shares. The NCIB began on November 5, 2024 and expires November 4, 2025 and allows the company to repurchase 35,783,842 of its Class A variable voting shares and Class B voting shares (10% of the public float). In our view, AC’s balance sheet position allows it to finance its elevated capital spend from 2025-2027 as well as return cash to shareholders.