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Air Canada Premier Airline in Canada

Air Canada Premier Airline in Canada. Air Canada Maintains and Strengthens Position in all Markets. AC Other. AC Other. 78%. 73%. 55%. 47%. 49%. 42%. 40%. 38%. 25%. 16%. 15%. 14%. 12%. 13%. 11%. 10%. 2001 results based on start of the year. Estimated market share.

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Air Canada Premier Airline in Canada

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  1. Air Canada Premier Airline in Canada

  2. Air Canada Maintains and Strengthens Position in all Markets AC Other AC Other 78% 73% 55% 47% 49% 42% 40% 38% 25% 16% 15% 14% 12% 13% 11% 10% 2001 results based on start of the year. Estimated market share. 2002 results based on OAG Q1 2002 scheduled airline capacity share, published December, 2001

  3. Q4’01: Encouraging Performance Despite Loss 2001 2000(millions) Q4 Q4 Change Oper. Revenue $ 2,117 $ 2,590 $(473) Oper. Expense 2,425 2,985 (560) Oper. Income (Loss) (308) (395) 87 Non-oper. Expense (82) (84) 2 Income (Loss) Before Tax $ (390) $ (479) $ 89

  4. Best Operating Results* of any Major International Carrier in North America AC % Operating Margin 0 -5 -10 -15 -20 -25 -30 US Q1 Q2 Q3 Q4 * Pre-government assistance - US Industry = 6 majors

  5. Air Canada’s 4th Quarter RASM Outperforms Industry 2001/2000 % Change AC 5 0 -5 -10 -15 -20 -25 US Q1 Q2 Q3 Q4 * Source ATA

  6. Unit Cost* Performance Outpaces Industry Throughout 2001 2001/2000 % Change AC US 10 8 6 4 2 0 -2 -4 Q1 Q2 Q3 Q4 * adjusted for one-timers – US industry = 6 majors

  7. More Air Canada Strengths • Proven track record of superior service • Top Brand recognition throughout Canada • Labor contract stability • Labor rates lower than U.S. carriers

  8. Labor Contract Stability Air CanadaCanadian Maintenance and Ramp June 2005- Flight Attendants Oct. 2001June 2004 Pilots Apr. 2004- Customer Sales & Service Mar. 2004-

  9. Future Labor Cost Much Lower Than U.S. Carriers 2002 2003 2004 Maintenance and Ramp 2.5% 2.5% 2.5% Flight Attendants - - - Pilots 2.5% 2.5% - Customer Sales & Service 2.5% 2.5% - Air Canada

  10. Favorable Competitive Landscape Service Competitor Reductions Trans AtlanticCancellations: Virgin Toronto-London Sabena Montreal-Brussels Trans PacificReductions: Numerous carriers reduced service via U.S. EVA Taiwan-Canada

  11. Favorable Competitive Landscape Service Competitor Reductions DomesticCanada 3000 ceases operations Nov/09 Transborder Cancellations:USAAA Boston-Halifax/Montreal/OttawaUA Toronto-DenverUSAir Toronto-Indianapolis Canada 3000 Toronto-Newark, Los Angeles- Vancouver/Edmonton/Calgary/ Toronto Reductions: Chicago, LaGuardia, Denver, San Francisco, Seattle, Portland, Los Angeles, Houston, Cleveland, Indianapolis, Baltimore

  12. Air Canada’s Action Plan • Launch new products • Reduce capacity • Renew fleet • Lower unit costs • Lower manpower levels

  13. Air Canada’s Products

  14. “Air Canada” Hub – network Transborder and Domestic network Rapidair International Two-class Air Canada brand Air Canada code Air Canada’s Products

  15. Key feed to mainline Regional markets Good frequency coverage Air Canada’s Products • Distinct brand • Unique code* * Air Canada codeshare

  16. Low fare Lower cost Supplemental flying in key markets Air Canada’s Products • Sun, long haul domestic, transcontinental routes • Distinct brand • Air Canada code

  17. Specialty charter Executive First configuration of surplus B-737 Air Canada’s Products • Focus on specialty charters (i.e. sports teams, etc.) • Concierge service

  18. Leisure, low yield Low cost Point-to-point, short haul Air Canada’s Products • Domestic/Transborder • Distinct brand • Unique code* * Air Canada codeshare

  19. Capacity Discipline % Change in ASM’s 2002 2001 10 5 0 -5 -10 -15 -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

  20. Smaller / Younger Fleet Change Change Dec / 00 Dec / 01 01/00 Dec/02 02/01 747 7 5 - 2 5 - 330/340 16 20 + 4 16 - 4 767-200/300 51 45 - 6 44 - 1 319/320/321 82 85 + 3 104 +19 737 43 26 -17 22 - 4 DC9 17 4 -13 - - 4 CRJ 25 25 - 25 - Total Mainline 241 210 -31 216 + 6 Regional 134 114 -20 105 -9 TOTAL 375 324 -51 321 -3

  21. Lower Unit Costs • Fleet reconfiguration • Lower cost on-board product • Increased distribution efficiencies • Increased airport productivity • Maintenance / fuel / real estate

  22. Manpower Levels Coming Down Full Time Equivalents 40,000 38,000 36,000 34,000 32,000 30,000 Q4 2000 Q2 2001 Q4 2001

  23. Good Liquidity • $1.2 billion in year-end 2001 cash • Approximately $3.0 billion of unencumbered assets • aircraft • engines and spares • inventory • real estate • lease deposit receivables • accounts receivable

  24. 2002 Mainline Aircraft Deliveries Sale/ Operating Leasebacks Leases A340-500 2 - A321-200 7 - A319-100 5 3 A320-200 - 3 Total 14 6

  25. Low Cap Ex in 2002($ millions) Aircraft $ 602 Financing ( 658 ) Net $ ( 56 ) Other 203 Total Mainline $ 147 Subs 15 Total $ 162

  26. Significant Value in Air Canada’s Business Units

  27. Investment Considerations • Commanding share of all markets served • Solid hub and network strategy • Traffic almost back to normal • Pricing recovering • Industry capacity rationalized • Unit costs coming down • Adequate liquidity • Low capital expenses going forward • Substantial business unit value

  28. Caution Concerning Forward-looking Information: Certain statements made in this presentation may be of a forward-looking nature and subject to important risks and uncertainties. The results indicated in these statements could differ materially from actual results for a number of reasons, including without limitation, general industry, market and economic conditions, the ability to reduce operating costs and fully integrate the operations of Canadian Airlines, employment relations, energy prices, currency exchange rates, interest rates, changes in laws, adverse regulatory developments or proceedings and pending litigation. Any forward-looking statements contained in this presentation represent Air Canada’s expectations as of February 11, 2002 and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

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