Cargojet Inc.

This conference has been recorded. All participants, please stand by. Your meeting is ready to begin. Good morning, ladies and gentlemen. Welcome to the cargo jet conference call. I would now like to turn the meeting over to Pauline Dillon. Please go ahead, Pauline.

Thank you, operator. Good morning, everyone, and thank you for joining us today for our third quarter results call. With me on the call today are A.J. Romani, our president and chief executive officer, Jimmy Porteus, our Chief Strategy Officer, Scott Calver, our Chief Financial Officer, Sanjeev Mani, our Vice President, Finance. After opening remarks about the quarter, we will take questions. I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs, and strategic plans, are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA, adjusted earnings per share, and return on invested capital. Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to the forward-looking information and for reconciliation of non-GAAP measures to GAAP income. I will now turn over the call to AJ.

Thank you, Pauline. Good morning, everyone, and thank you for joining us on the call today. Despite the backdrop of macro headwinds and market conditions, I am very pleased with our results. While our EBITDA was negatively impacted by fuel surcharge lag, we were able to report revenue growth. Our diversified business model continues to show resilience. Transportation and logistic industry is the backbone of economic activity. If the economic activity slows down, it affects all forms of transportation, rail, air, and ground, as we all feel the impact. We are seeing an interesting mix of transactions in the market. As many retailers have already stated in their earnings reports that the spending of discretionary goods is slowing down, but more of the household dollars are being spent on daily essential goods. For us, it's the number of packages that drive our business. So for the growth in the household essential goods is offsetting the declines in the discretionary goods transactions. But as I have stated before, we are not immune to macro factors. While it's true that we cannot control the aggregate demand, but there are many areas of business where we can drive performance. Let me touch on a few areas where we're making a significant impact. At the highest level of priority is a cash flow management. We have continuously found ways to defer or cancel in several aspects of our CapEx plan announced in the investor day. All of our fleet decisions had optionality, which allowed us to delay or cancel certain aircraft purchase. As a result, We have significantly reduced our planned CapEx and there may be more opportunities. Scott will provide some color on the CapEx a little later on. Equally important area of focus is cost management. I'm seeing examples of cost savings every day from my team and very encouraged with the new culture of frugality that is setting in at Cargill. This talk, this took some time given the fact-based growth we handled during COVID period, but the new market is setting in, new mindset is setting in very fast. In our business, the biggest cost driver is capacity utilization. We are very pleased to work closely with our customers to optimize our network so we can avoid flying sub-optimized routes and reduce block hours. This is an area of core strength and differentiates us from others. All current contracts with each of our strategic customers are now renewed for longer term as much as 2029 and 2030. Despite new entrants in the air cargo, we feel confident in our competitive position in both domestic and international markets. We do not see much of an impact any of these new entrants have made in the Canadian cargo scene. With all these actions undertaken to further strengthen our business model, we are even more confident that our ability to come out stronger on the other hand of the economic cycle. Therefore, cargo jets board just approved a share buyback program through the normal course issuer bid. We believe there is true opportunity to create value for shareholders by purchasing common shares. We also announced 10% increase in dividend payouts in line with our previously stated strategy of annual dividend growth. Our focus on service quality and on-time performance continues to win customer praise, and it will always remain the bedrock of who we are. Every team member at the CargoJet understands that. As I always say, one thing, and we do it well, we do not have to make trade-offs between passengers and cargo. Every package on our network flies first class. That concludes my prepared comments, but I must add that the on-time performance of our Quora 3 this year again was stellar at 99.5% on-time performance, and that's what makes CargoJet what it is today. I will pass on the comments to Scott Calvert for an update on the business side.

Thank you, AJ, and good morning, everyone. I would like to start with more details in regards to AJ's comment about the CapEx reduction. We have so far reached a reduction in capital expenditures of $450 million. The original plan included eight Boeing 777s. The first four to support growth with strategic customers and the last four for what we refer to as general growth. What has been canceled is the last four 777s. The sale of the remaining feedstock was completed in the third quarter. It should be noted that we continue to hold the conversion slots for the 777s designated for general growth, conversions that could take place in 2025 and 2026. The deposit for these conversions is not material. This allows for additional optionality in the event the market turns and CargoJet is successful in securing long-term contractual revenue. We have also listed four Boeing 757s for sale. AJ commented on the second quarter earnings call that we had a surplus of 757s and that we were exploring our options. While these are listed for sale, we will continue to entertain dry lease opportunities and we are pursuing other opportunities such as scheduled charters, ad hoc charters, and any opportunities that may arise during the fourth quarter peak season. The sale of the Boeing 777 feedstock and the potential sale of the four Boeing 757s converted freighters is the $450 million I referred to earlier. As AJ noted, we continue to monitor the market conditions and we will explore additional opportunities for further reductions if need be. At the end of the day, we anticipate the vast majority of growth CapEx will be completed towards the end of 2024. Maintenance CapEx will continue to be in the range that we have previously disclosed. With the changes in future growth CapEx, this now brings me to my next point. The company now expects to return to normalized free cash flow and the timing is sooner than previously expected. We are excited to start to purchase and cancel common shares. At these current share prices, a share buyback program is likely to be highly accretive. Given that Cargojet can deliver quickly, we are confident that Cargojet debt level will be managed to ensure that we continue to have a strong balance sheet. Along with the intent to purchase shares, We are also excited to increase our dividend by 10%. Cargojet has a long track record of increasing dividends. This increase reinforces our commitment to return value to our shareholders. The last topic that I would like to update you on is our progress with managing costs. The third quarter was a challenging quarter as jet fuel prices increased over 30% throughout the quarter. As we have mentioned in the past, our mechanism for fuel surcharge revenue has a two-month lag. Over time, changes in jet fuel prices are neutral to profitability. When the price of jet fuel increases, we have an adverse impact to profitability. The inverse is true when jet fuel prices reduce. The best way to assess cargo jets' progress in managing costs would be to calculate direct costs per block hour. direct expenses excluding fuel depreciation and amortization. When doing this, the direct cost per block hour in the third quarter is flat to the second quarter. For a more granular view of our cost structure, I would like to bring your attention to one of our cost-saving initiatives. Earlier in the year, one of these initiatives was to sell our smaller passenger aircraft. These were required to reposition pilots at a time when commercial flights were not reliable or even available. The savings from not using owned passenger aircraft is reflected in the line in our direct expenses called aircraft costs. There is a partial offset to these savings in the crew line within our direct expenses as pilots now are able to fly on commercial flights. It is best to look at aircraft costs and crew costs in aggregate. When you do that, you will see that these costs are $1.8 million lower than the prior year. You will see a slight increase in our run rate compared to the second quarter 2023. The reason for this small increase in the third quarter is that a new long-term incentive plan was implemented for pilots that have been most recently hired. CargoJet has a long-term incentive plan as a tool to maintain industry-leading pilot retention. Vesting for this new program for recent hires goes out to the third quarter of 2029. In conclusion, as management prepares for any lift in revenue for the fourth quarter peak season, any potential lift, we are confident that we will continue to manage costs in any scenario. This concludes our prepared remarks. I will now hand the call over to AJ for any questions.

Operator, please open the lines for Q&A.

Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please leave your answer before making your selection. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while participants register for questions. Thank you for your patience. We will now take the first question from Matthew Lee. Can I call John Unity? Please go ahead.

Hey, morning, guys. I wanted to first ask about the ACMI business. Can you maybe just talk to us about the decreased quarter-over-quarter and year-over-year? Any one-time items impacting numbers? Is that just the Pacific flight being rerouted? And maybe do you feel confident that DHL is still coming to take on those new aircraft coming in 2024?

Yeah, good morning, Matthew. It's Jamie. I can take that one for you. The reduction in ACMI revenue during the quarter was just a reflection of the the shorter average stage length of the routes of the aircraft that we fly for DHL. If you recall last year, when demand out of China was very strong, we were operating two aircraft on an ACMI basis for DHL from Shanghai through Vancouver to Cincinnati. And when that demand dropped in the fourth quarter, they had to shift those aircraft to North American and South American routes. So it's just the same number of aircraft that are operating this year as we were operating last year, just on shorter stage length routes. That's the only reason for the difference. And, yes, we are confident that we'll continue to grow the relationship with DHL with the additional aircraft next year.

Great. And then maybe in terms of CAPEX, I think in the MD&A you mentioned, you know, the bulk will be done by the end of 2024. Can you just maybe help us think about the magnitude of the step down going into 2025?

Hi, Matt. It's Scott here. I can take that one. Really, most of it should be done towards the end of 2024. There will be some carryover into 2025. But when we're doing these conversions, most predominantly it's the first four 777s, we're making progress payments at different milestones throughout that conversion process. So we're going to be pretty close to the end of that conversions process. So most of those costs will already be incurred in 2024, but there definitely will be some small carryover into 2025, but not all that material.

Like under $50 million kind of thing?

I think that'd be fair on the conservative side. Okay, thanks. Yeah, that's helpful. Thanks.

Thank you. Next question is from Connor Gupta from Scotiabank. Please go ahead.

Thanks, operator. Good morning, everyone. Just wanted to follow up on that CapEx questions, Scott. Can you help us explain the math on the net $200 million growth CapEx? You have six more aircraft coming in, right? Four 777s and two 767s between now and 24. And then you have some more feedstock that's left to be sold or monetized and some 757s. What are you using for the remaining aircraft? cash outflow for aircraft purchases and what's in that offset to that from sales.

Yeah, really at this time, Konark, it's really all about the 777s making the progress payments through to completion.

And I don't think we are converting the 2767s, Konark, that you were talking about.

Yeah, we have that owned as feedstock right now, but we haven't made commitments to convert those at this time.

So they're definitely on hold and we have no plans to convert the 2767s any further at this time.

I see, okay. And what about the expanding asset sales you have? What's the cash inflow from those asset sales?

I'm sorry, can you repeat that question? You broke up a bit there, Conor.

Sorry, yeah. I'm saying the aircraft sales that you are planning, right? I mean, you still have some more to do. What's the cash inflow that's left to come in?

Okay, well, we're done selling our feedstock. We had to sell three of the last four 777s. We never had any investment for that eighth 777, so really we had number five, six, and seven. We communicated in Q1 that these assets were held for sale, for disposal, and we did that from Q1, Q2. It was finished in Q3. There's a little bit of cash flow coming in in Q4 just for the insurance proceeds. So you'll see a little bit held there just from a cash flow perspective, but that just came in subsequent to quarter end. Now you're talking about the 757s. The four of those, generally speaking, you know, this always changes. The market conditions always change. But generally speaking, we would expect something like $120 million for those four fully converted 757s. Okay.

Thank you for that. And then just to follow up on the peak seasons, So the commentary you guys made in the disclosures was you were expecting it to be muted this year. Just comparing versus last year's peak season, that also seemed muted. Would you put the seasons to be similar in both years, or you think this year's peak season could be even worse than last year?

Morning, Conor. It's Jamie. No, we don't expect it to be worse. We would expect the forecast that we've had So the consensus from our customers is that they expect similar volumes in peak of this year to peak of 2022. So I think, if memory serves me right, I think our Q4 volumes were up about 10% to 15% over Q3 of last year, and we would expect similar this year.

That's great. I've done the call over. Thank you.

Thank you. The next question is from Cameron Duxon, National Bank Financial. Please go ahead.

Yeah, thanks very much. Good morning. Just to go back to the 757 pending sale, the $120 million you talked about, do you have some confidence you'll be able to sell those planes in the next 12 months?

Definitely. We are in ongoing discussions. They're also available for ECMI. They're also available for charters. As a matter of fact, You know, in peak, we are bringing one of them back because we have a number of charters that we already booked. So although they are parked for sale, we still use them. And we feel that, you know, if we don't get $120 million, it's not like we're not fixated on it. It's somewhere close enough that there will be a deal done at some point. But keep in mind, Cameron, there is also... These aircraft are brand-new conversions with very good engines. So what's the worst-case scenario if the market doesn't have any need for these aircraft? I can tell you the spare parts, the landing gear, the engines are worth over $80 million on these aircraft, which we would take them out and put it on our existing fleet to defer maintenance capex. So it doesn't give us any sleepless nights that these aircraft are not sold as of today. So we do have an alternate use. We don't have to send over engines for overhaul. There's very overhauled eight brand new engines sitting on these aircraft, landing gears, avionics, flaps. We've got so much stuff sitting on these aircraft that if we were to start taking parts, our parts costs would come down, our engine overhauls would come down, and we can get, as I said, $80 to $90 million reduction in capex by just using those parts. So that's obviously the worst case scenario or the backup plan.

Right. Okay. No, that makes a lot of sense. Secondly, for me, just on the all-in charter, like another quite strong quarter for you, just wondering if you can talk about how that business looks for the next few quarters. I mean, I know typically in Q4, you'd be busy with using the aircraft on your scheduled business, but how is that business evolving, the all-in ad hoc charter business?

It still continues very strong, Cameron, and we expect sort of the trend that we had in Q3 to continue in Q4 as we have extra aircraft available and extra flight crews to take on additional lives. That's one of the reasons for the strength. The demand is still very strong on the ad hoc charter segment of our business, and the fact that we have aircraft available and crews available literally 24 hours a day, we're taking advantage of those opportunities, and you should see that trend continue in Q4 and even into the new year.

Okay, so we should think about, you know, I mean, it was a very strong Q4 last year for that line item, so we should probably expect a similar strong performance this Q4. Yeah, that would be fair. I would expect that. Perfect. All right, that's it for me. Thanks very much.

Thank you. The next question is from Kevin Chang from CIBC. Please go ahead.

Thanks. Thanks for taking my question. Just as a clarification, the $200 million in growth capex or net growth capex you highlighted in your MDNA for 2024, I'm assuming that's assuming the sale of the 757, so the $120 million worth of proceeds, or how should I be thinking of that, I guess?

Yeah, Kevin, that's right. That's net of proceeds. So that's net capex, net of any sale of proceeds. Okay, that's helpful.

And then I guess with the NCIB, just wondering how you're thinking about deploying that. Is it primarily taking the proceeds from these asset sales to repurchase shares, or are you focusing on a certain leverage ratio before you start buying stock at these levels? I understand and I agree that it's obviously highly accretive down where your stock is today. But just wondering how you're thinking about deploying capital towards the NCIB over the following 12 months here.

Yeah, it's definitely a combination of those two things, Kevin. We do have, at these share prices, obviously we've got to create some value by buying back shares. We're going to have a bit of tolerance for a little bit more leverage than what we typically targeted in the past. And the reason being is because how quickly we can deleverage And now that we're getting reasonably close to the end of this growth cap X, it just adds the certainty with everything that's settled into our run rate that we can expand a little bit on leverage. And so, absolutely, the sale of 757s helps with leverage and it creates more capacity to buy back more shares.

Okay. And then this last one for me, you know, domestic was nicely up quarter over quarter. And then in the prepared remarks, you talked about working with your customers to deal with their changing needs. Maybe just what did you see in Q3 versus maybe what you saw in Q2 on the domestic side? And then just any color on the comments around, I guess, adapting to the changing needs of your customers. Is that primarily around the shifting schedule you've talked about, or are you looking to help your customers in other ways?

Good morning, Kevin. It's Jamie. Now, working with our customers was really in adjusting the schedule to allow us to reduce block hours and reduce the capacity that we fly on the domestic network to more closely meet the demand. The domestic revenue, you're right, it was quarter over quarter. We saw a good increase. The trend is certainly good. I think in Q3, we were, in terms of total weight in our chargeable weight, we were flat year over year at about 100 million pounds on the domestic network. And that compares to, I think we were down 10% in Q2 year over year, and we were down 12% in Q1 of this year versus the previous year. So sequentially, the trend is moving in the right direction, and it is a good positive sign moving into Q4 for peak season this year.

So just underlying demand is improving sequentially. That's a good point. I'll leave it at that. Thank you very much for taking my questions. Thanks, Kevin.

Thank you. The next question is from Tim James from TD Cohen. Please go ahead.

Thank you very much. Good morning. First of all, Jamie, if you could just talk about why do you think the ad hoc charter business, it seems to me, correct me if I'm wrong, that it's pleasantly strong. I'm just wondering, what is it that's keeping the market relatively strong for you? Is it just because you've got the capacity available so that you can kind of use that in the market? Or is there something in the demand environment that's creating more strength than you would have anticipated?

No, I think, Tim, that the demand is always there. We've been limited during most years. We're limited in our capability to react to that demand because we traditionally have or historically have We don't have any aircraft or flight crews that we dedicate to the ad hoc charter business. It's all utilizing existing aircraft that are part of either our domestic or our ACMI revenue segments and the flight crews that are part of those segments. So during a more normal year, our availability is somewhat limited. It's usually to weekends and during the day when those aircraft aren't flying in the domestic network or on an ACMI network. segment. But this year, with additional aircraft availability in our fleet because of some of the reductions we did to the domestic flying, we've had aircraft and crews available 24 hours a day, seven days a week. So that's led us to be able to not just quote on all the available charters, but actually to successfully win that business and perform those charters. The demand continues to be very strong. It's just we haven't necessarily had the aircraft out there to be able to react to it in previous years.

The other factor is when the markets for air freight and any general cargo, you see the slowness, and as we were saying in the marketplace, charters normally pick up because a lot of people have urgent needs for goods to get there because they they're not shipping regular air freight, they're not shipping regular truck freight, and all of a sudden they need something, they need to fly it out. So they would rather spend on a charter on an ad hoc basis than pay regular air freight all day long. So there is some correlation to when the market slows down, the charters do pick up. Okay, thank you.

My second question, and maybe I'll leave ad hoc charter out of this question, but just in terms of the rest of the business, Could you comment on what, if anything, you would say has changed in your outlook since you reported the second quarter? And correct me if I'm wrong, I think you kind of anticipated a muted peak season, which you're talking about now. But is there anything... whether it's pricing-related or volume-related, either in the way DHL is setting up your capacity or whether it's in the domestic market, just anything that's changed in your outlook from three months ago?

Let me start, and then Jamie can add some color to it. Well, what we have noticed is that the global shipping is down and it's 90% the impact is coming from the Far East Asia and China market. So, you know, a lot of Chinese products just not only comes to North America, it goes to South America, it goes to a lot of places. So, you know, our customers, primarily the big ones, tell us that China business is down 40% right now. So, That's what sort of dictates a lot of Pacific North American movements, Pacific European movements, intra-Canada, a lot of intra-American to Mexico. So that's what we have noticed that if that slowness was there, we'll all be doing well. And that also, if you look at some of the ocean lines results, you'll see that they're you know uh having the same issues of not having enough uh volumes to go and it all starts with that side of the globe especially china when the business is slow out there the rest of the world finds it to be very slow in other areas okay just adding to that tim on you know specifically on the on our domestic business as i mentioned in response to one of the questions earlier

You know, sequentially, quarter over quarter, we've seen, you know, a good trend where we're flat year over year versus Q3 of last year where we were down, you know, close to 12% at the beginning of the year on the domestic business. And we adjusted, you know, our block hours and our flying and our costs accordingly to maintain our margins. And the ACMI businesses, I also mentioned earlier, you know, it's only lower because of the average stage length of the flights are less than they were when we were flying to China last year on a couple of aircraft for DHL. But in both those segments, you know, all the customers, whether it's an ACMI customer or a domestic customer, have minimum volume or minimum revenue guarantees, and they're all well above those minimums. So, you know, we've seen a positive trend. Again, also, you know, not that it has a direct correlation to our business, but another global trend. I think IATA reported their reports lagged by a couple of months, but I know in July they had reported that global air cargo demand was only down 0.8%. And then in August, for the first time in 19 months, overall demand grew by 1.5%, not a big number, but the trend is certainly in the right direction.

Okay, thank you very much.

Thank you. The next question is from Chris Murray, ATV Capital Markets. Please go ahead.

Yeah, thanks, folks. Good morning. Jamie, maybe talking about 24, an early look into the year, You know, how are we thinking about or what are you getting back from your customers around the different moving parts around both ACMI and the domestic business?

I think everybody's still a little cautious about what 2024 is going to look like in terms of volumes. You know, I think we would expect, you know, with the annual rate escalators that we have on the anniversary date of all the major agreements, both domestic and ACMI, You'll see a bit of an uptick in revenues just if volumes remain flat. And the organic growth, I would say we're factoring probably mid-single-digit percentage growth on the domestic business year over year and something similar on the ACMI.

Okay. Any new contracts in ACMI that we should be thinking about that come into play?

Not right now. We continue to, obviously, a big part of our ACMI business is DHL. We continue to work with them and grow with them. And we have other, we just renewed Canadian North, which is a smaller ACMI agreement that we have. We're five aircraft that we operate between Ottawa and Winnipeg and Iqaluit during the day. We renewed that for several years. And we continue to pursue other opportunities with various customers, but nothing imminent.

Okay. My other question is around margins, and I'm not sure who wants to take this one. I guess in Q3, there was sort of the lag in fuel surcharge pricing coming through the system. I'd assume that might catch up in Q4, but maybe get some color on that. That'd be great. But with the volumes that you're looking at year over year, but some of the other initiatives, it sounds like on the cost profile, how should we be thinking about EBITDA and EBITDA margin this year and any thoughts about you know even if we stay to your point maybe kind of mid single digit type growth next year do you think that margins have a reasonable chance of expanding as we go into 2024?

Maybe I'll take the first part of that question Chris and then I'll hand it over to Jamie with that quality of revenue mix issue for next year. The That fuel surcharge, yes, we all saw that happening throughout the quarter, the steady increase in jet fuel prices, and then that Statistics Canada index that guides our fuel surcharge program. Now, you're asking about Q4. We still have several weeks left in Q4, and that's what really hurts us is that weekly change in jet fuel prices each week. We have that inflation immediately. Then, of course, it takes that two months for it to catch up. But, yes, you're right, the first part of Q4, It's going the other way, which is great, but we still don't know what's going to happen to the end of the year. And then you talked about normalized IFTTT down margin, excluding that fuel impact. And there's a couple ways to look at it. Again, the one that I talked about earlier was just look at our direct expenses, excluding the fuel and depreciation, just to make it simple. And then you'll see that everything's in line with what you would have expected with Q2. So implying that margin would be the same, because really all that happened on the revenue line is that fuel surcharge leg, generally speaking. And I guess, Chris, another frame of reference, maybe just to make sense of this, because it is, you know, when you look at rail or trucking, they have a one-month leg. And it's still a big issue for these types of companies. But with us, with a two-month leg, it just makes it so much more significant in our quarterly numbers. And that's what you saw in Q3. But it's no different than what you saw in Q4 last year and Q1 earlier this year. Same type of difference. The only difference was it was a bumpy decline over those two quarters. So it was just spread over two quarters instead of one quarter going in the opposite direction. So that's what you can expect over time. It's just one of these things we have to live with. But it does prove when you do that, that it is neutral to profitability. So hopefully that helps. It is a complicated topic when you're looking at a two-month leg over a three-month quarter. But those two frames are referenced. I think that when you do that, you'll see that that top margin is stable.

Sorry, Chris, I was just going to add that, you know, I think in Q3, what we just reported, our EBITDA margin was around 32%, 33%. And we internally, you know, just sort of as a double check to that, you know, we can easily look at, you know, what should the surcharge revenue had been in the quarter from our customers and had the cancer index been up to date and we charged appropriately in the quarter to reflect the increase in fuel costs. And our EBITDA margins are in the mid-30s, which is where we would expect them to be.

Okay. And then what are your thoughts on 24 and quality of revenue?

Like I said before, I think we're very, you know, probably conservative in terms of revenue growth, both on the ACMI business and the domestic business, but we continue to to operate and DHL continues to flex the routes that the aircraft are operating. We're going to have some additional flying as we always do during the fourth quarter. And then going into 2024, we're still operating the same number of aircraft until we take delivery of the 777s later in the year for them, barring any change in demand upward. The domestic business, as I noted earlier, we're probably forecasting, you know, mid single digit revenue growth, mid to high single digit revenue growth year over year. And the charter business, again, you know, will continue the trend that we've seen for most of this year that we anticipate we'll have available aircraft. You know, subject to, you know, if we sold all four 777s right away, or sorry, all four 757s right away, that might restrict the number or lessen the number of aircraft we have available for charters. But based on what we see right now, we should continue that trend into at least the first couple of quarters of 24. Okay.

Sounds good. Thanks, guys.

Thank you. Once again, please press star 1 on your device keypad if you have a question. The next question is from Walter Sprocklin, RBC Capital Markets. Please go ahead.

Yeah, thank you very much, operator. Good morning, everyone. I just want to come back to the margin question to focus in a little bit on your historical margin and how that evolves going forward, particularly given I think in prior quarters, you did and were incurring quite a bit of overtime and training costs. Recent quarter, you've had the fuel surcharge lag effect. So if we do look at that volume growth assumption in the mid-single digit range, is it possible, given your fixed aircraft structure or route structure, that we could have actually quite a material increase in your in your margins and is approaching 40% EBITDA margin out of the question here for a normalized level going forward?

Well, Walter, if the times were good, I would say yes. But looking at the economic trends and you've seen our customers and competitors and all the trends that you've been seeing, whether it's ocean line or airlines, you're seeing the revenue drops by 30%, 40% on each margins down by them. So considering that, I think we've done very well. I don't think we'll hit 40% in today's environment. If things were to pick up and things were to improve, then obviously we could look at some of those stuff, but not in today's economic environment.

Understood. Yeah, that makes sense. And in terms of your capex, just to kind of formalize this and the change you're making to your fleet, presumably your investor day is forecasts for 2026 would no longer apply? And do you envision updating those now with the new fleet strategy? What are your plans there?

Yeah, we want to update that in the first quarter of 2024 because, you know, we have, as I said, we have sold the feedstock of the four triple sevens, but we still maintain conversion slots because I think those would be very handy and they would be valuable if the market improves. If not, they can be transferred, sold, or something else can be negotiated for it. So I think that we are working on a strategy for next year on the fleet for sure. And as you know, there were first two 777s that committed with DHL, whether they come out in the middle of next year or end of next year, they're totally committed. And then 25, 26, we have two other triple sevens. So we will lay out a full strategy, hopefully by the end of first quarter, on our fleet and our forecast. Perfect.

Okay, that's all my questions. Thanks very much.

Thank you. There are no further questions registered at this time.

Thank you, operator. Thank you, everybody, for attending our quarter three call, and we look forward to speaking to you soon. Have a great day.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.