Good morning, ladies and gentlemen. Welcome to the Cargojet Conference Call. I would now like to turn the meeting over to Ms. Pauline Dhillon. Please go ahead, Ms. Dhillon.

Thank you, operator. Good morning, everyone, and thank you for joining us on the call today. With me on the call today are Ajay Virmani, our President and Chief Executive Officer; Jamie Porteous, our Chief Strategy Officer; Scott Calver, our Chief Financial Officer; and Sanjeev Maini, our Vice President, Finance. After opening remarks about the quarter, we will open the call for 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 forward-looking information, and for reconciliations of non-GAAP measures to GAAP income. I'll turn the call over to Ajay.

Thank you, Pauline. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. I want to begin by sharing a few thoughts on the economic climate. Although the Central Bank started to raise interest rates last March, the impact on consumer behavior is just beginning to be felt. We saw this in our December peak period, which was lower than last year. We expect the consumer to remain cautious and retail sales to remain subdued in the near future. However, I want to put Cargojet’s last three years in context. Our adjusted EBITDA for the year ending 2019 was $156 million and we ended ’22 with EBITDA of $330 million. This is an increase of 111% over three years. There is a perception that all of the growth was COVID-driven. Let me remind you that these three years we have brought in a major strategic partner DHL and diversified our business into ACMI as a strong pillar. This new revenue improves the mix between our flagship domestic business versus the lines of business, charter, although cyclical continues to be an important and opportunist business that helps us utilize our assets when they're not supporting our domestic overnight network. We have also been prudent in managing cash flow and capital expenditures. Given the nature of our business, we have always structured our capital expenditures and their plans with flexibility and optionality. With the changing economic conditions at the present time, we are exercising that very flexibility by deferring capital expenditures previously announced by approximately $400 million. This will involve the major portion of this will involve not two, but four 777s. So, we will have a reduction of four 777s from the eight. Scott will have further comments on this particular matter. I also want to highlight that while we have done that, we have maintained our flexibility with MROs for conversion slots, which are premium and we will hold on to that and defer them by 12 to 18 months or two years if we need to see the economic climate, what kind of conversions it would want. Scott will provide more color on this as I mentioned. As an entrepreneurial company, we have always been focused on cost management as the pandemic hit, we were focused on meeting the demand and deployed resources and added cards to successfully manage the opportunity. At that time, our simple principle was we need to handle the volume, which was overflowing and it had to be done at any cost. Now we find ourselves dealing with a different set of economic environment and have shifted back to our basic routine of focusing on every dollar we spend. Every dollar we’re spending is under review. As such, we have several initiatives underway that will reduce costs and allow us to remain focused on our goal of maintaining historical margins. We are also focused on rightsizing of our network, our fleet and our human resources to max the demand out there. At a macro level, e-commerce has now become part of a normal consumer behavior. A lot of more essential goods are being ordered online versus selective on buying occurred prior to COVID. The job market continues to be resilient and inflation has started to show some signs of weakness [Technical Difficulty]. It also worth noting that our business is underwritten by some of the world's largest logistics brands such as Purolator, Canada Post, UPS, Amazon, DHL, TFI International and Andlauer Health Group. There's an old saying you're as good as the company you keep. These are resilient businesses and will continue to be the backbone of our global trade and commerce. In the fourth quarter, we announced the renewal of UPS contract in the mid-January. We announced the Canada Post and Purolator contract expansion in January as well. These contracts are long-term, they were not -- they were expiring in March 2025, but having heard of our investment partners, we purposely extended these contracts to 2029 and 2031 locking up these customers and ensuring that there is no competitive impact on our business. This also solidifies Cargojet’s leadership position in the Canadian overnight air cargo market. We have now extended all of our strategic customers. We have managed two down cycles before when [Carbon Data] (ph) was a much smaller organization with limited options to manage costs, today Cargojet is much larger, much more optionality in managing the economic cycle. You may recall we started to prepare for the cycle back in January 2021, when we solidified our liquidity and our balance sheet by raising $365 million in equity. We remain confident in our long-term growth strategy and expect to resume our capital expenditures and growth initiatives as we come out of the economic cycle. Just as our team demonstrated resilience in managing rapid growth driven by a pandemic, we are equally capable of managing the down cycle with similar rigor and discipline. One of the biggest lessons we have always learned in our business, it’s never as rosy as it seems, never as glooming as it appears. Therefore, we will stay focused on our long-term mission of creating shareholder value and managing our short-term volatility. I will now pass on the call to our CFO, Scott Calver, for an update on business. Thank you.

Thank you, Ajay, and good morning, everyone. I will focus my remarks today on three topics. First, our results Cargojet posted yet another strong quarter with a 13.2% increase in our revenue. Our diversification strategy is paying dividends as demonstrated by the strong growth in our ACMI business, while our domestic business started to see some weakness late in the fourth quarter. The softer margins in Q4, compared to last year reflect our deliberate decision to not disrupt peak operations that are crucial for our customers. There are a number of pandemic era extra costs that need to come out of the business and we have embarked on a careful plan to streamline all cost line items across the business. Towards the end of November and throughout December, Cargojet and our customers experienced volumes that were lower-than-anticipated. The recently released economic data clearly shows a decline in consumers spending as the month of December progressed. After consultation with our strategic customers, the consensus was to consider December slowdown as the beginning of a trend. A trend that ultimately could be a recession with reduced customer spending. In December, management pivoted to a disciplined focused on cost management per block hour and to further strengthen our balance sheet, which brings me to my second topic, our balance sheet. We are paying equally strong attention to keeping a strong balance sheet that we have made several decisions to temporarily bring down our overall CapEx spend by $320 million to $400 million as Ajay mentioned, compared to what we shared with you at our Investor Day last September. As part of our previously stated diversification and growth strategy, Cargojet undertook to add Boeing 7 77 long-range fuel-efficient aircraft to our fleet to expand international reach, strategically enhance our domestic network and to broaden capability for long range charters. This aircraft allows Cargojet to selectively add international routes that synergistically connect with our flagship domestic network. A total fleet of eight 777s were planned with the first four 777s to be deployed with DHL as part of Cargojet strategic agreement. And with the remaining four to expand our international reach. The four aircraft embarked for DHL will continue conversion, but recent forecast for the slowing global economy will curtail our capital expenditure and deferred taking delivery of the final four 777 freighters as previously announced. While maintaining full access to our conversion delivery slots. Arrangements with our MRO partners give us flexibility to maintain access to these valuable widebody aircraft conversion slots, while at the same time, better timing our capital commitments considering the global recessionary risk. The feedstock market for 777s is expected to remain strong, allowing Cargojet to initially divest feedstock of two 777s, freeing up cash to be used to pay down debt, while retaining optionality on conversion slots for the 2024 through 2026 should the economic climate turn positive earlier than expected. So, to summarize, the first four 777s for DHL are still planned. The four that are designated for general growth, we did not buy feedstock for the fifth unit, so that's deferred. The six and seven units are related to the LOI as previously noted and the eighth unit will be deferred as previously discussed on the last results call and this feedstock may be sold as well. The impact of the $320 million to $400 million deferral to our 2023 growth CapEx spend will be a net reduction of approximately $100 million to $125 million and it could be slightly higher if we sell that last feedstock. The remainder of this deferral will impact mostly 2024 if required. The third topic, the resilience of our business model. As Ajay mentioned in mid-January, we announced the Canada Post and Purolator contract extension. This contract was to expire March 2025. The agreement was extended to September 30, 2029 with an option to extend to September 30, 2031. This early extension solidify Cargojet leadership position in the Canadian overnight market. We have now extended the contracts for all of our strategic customers. These contracts were extended well before their contractual termination date and they extend out to 2027 and beyond. These are solid examples of our value proposition. During peak COVID, the demand of air cargo led to Canadian passenger airlines entering the air cargo market with the launch of their own dedicated freighters. As demonstrated with our 100% customer retention rate, our business model has once again passed the competitive stress test of our customers evaluating their options and renewing long-term contracts with Cargojet. All domestic and ACMI contracts contain minimum volume guarantees. These provide further support to Cargojet during softer economic cycles. In conclusion, we have rapidly responded to manage the business during this down cycle. We have taken rapid steps to preserve margins, profitability and to maintain a strong balance sheet. We have a strong team that can execute our cost control initiatives and we look forward to updating you on our progress in coming quarters. This concludes our opening remarks and we will now open up the call to questions.

Thank you. We will now take the questions from a telephone lines. [Operator Instructions] First question is from Konark Gupta from Scotiabank. Please go ahead. Your line is now open.

Thank you, operator. Good morning, everyone.

Good morning.

Good morning, Ajay. So, my first question is on the ACMI, given the DHL ramp up that's been going on. What was primarily the driver for the revenue decline in Q4 versus Q3 sequentially? And would you expect this Q4 ACMI revenue run rate to continue in 2023 or should it increase the new aircraft offset by maybe block hours going down?

I'll get Jamie to answer that.

Yes. Good morning, Konark. Good morning, everybody. I mean, part of the reason we saw reduction in ACMI flying in Q3 was just a redeployment of a reaction by DHL globally from the softness that we saw here domestically and globally, rearrange some flying as an example. For most of the year, we were flying two aircraft on routes from Cincinnati to Vancouver to Shanghai. And when there were softness in that market in the fourth quarter, those aircraft were redeployed to new routes [Technical Difficulty] Central [Technical Difficulty] and that reduction in block hours still well above the minimum number of block hours per month, but lower than what it would have been comparatively previous quarter. In terms of 2023, we'll continue to see strong growth on the overall ACMI [Technical Difficulty] in ’23, a combination of the result of the annualized benefit of the three new routes -- three new routes we started at different points in 20 22 for DHL that you'll see the flow annualized effect in this coming year.

Okay. That's great color. Thanks, Jamie. And then with respect to the fleet, so I probably missed the CapEx number if you guys laid it out on the call here. So, the prior guidance I remember on CapEx for 2023 was $320 million to $370 million with the fee changes you announced this morning, which included I think two 777 sales as well as, I think, deferral of some slots are conversioned. Where does the CapEx go from that guidance for 2023?

Yes, it's Scott here, I'll take that one, it’s going to reduce by in a range of $100 million to $125 million. Now as Ajay mentioned, we do have optionality to sell that feedstock for that eight 777, so that they could even be expanded off that range. But currently right now, we're planning in that range of $100 million to $125 million reduction from what was previously disclosed.

Okay. That's great. Thanks Scott. And is that just to confirm that $100 million to $125 million reduction inclusive of the two 777 sale proceeds?

That's right, absolutely.

Okay. No, thank you. Okay, and then last one for me. With the lack of macro environment that you guys have seeing here and clearly you called out that the peak season being softer than expected could be a trend. But the ACMI growing in ’23 domestic maybe softer than maybe initially thought. Would you still expect 2023 to be a growth year from both revenue and EBITDA standpoint given the commentary in the MD&A that the margins are likely to be stable?

So Konark, yes, we expect the 2023 growth to be a growth here, but certainly not a double0-digit growth here. We expect that it will continue to grow, that's what our customers are telling us. But it won't be like a hockey stick that we have seen in the past three years for sure. So, it will be in the mid-single-digits probably that's what we're looking at on. And on the 777s, I also want to clarify that just to make it clear that we had originally bought four 777s for non-DHL purposes. And out of those, we canceled one agreement, so then we had three feedstock already two have been sold out of that, one is in the process of selling, so we would -- that's where the major reduction of almost $400 million is going to come from 777s and its related costs. But when we say we are canceling it, we are canceling the -- buying the feedstock or selling it, but we are maintaining the current convergence slot. So, we are still in the market should things improve.

Okay. Thanks for the color. Thanks, I appreciate it.

Thank you. Our next question is from Cameron Doerksen from National Bank Financial. Please go ahead. Your line is now open.

Yes, good morning. Thanks very much. Maybe just to go back on the CapEx question, you gave some good details around 2023. Just wondering if you've got kind of a new expectation. Obviously, there's some moving parts here, but I just wanted to have a new expectation for 2024 CapEx?

Okay. Yes, so maybe if I just back up a little bit, because we'll just anchor with what we previously disclosed last year. Where it was going to be approximately $1.1 billion. And when you see our Q4 results and what we spent in 2022, we spent $600 just over $600 million and about $480 million of that was growth capital. So here we spent $480 million of the $1.1 [billion] (ph) in growth capital. So, when you look at the deferral that we announced and as Ajay said, it could be as high as $400 million. Most of that will impact the 2024. Now we don't know, like we don't know if it's a six-month deferral, 12-month deferral or an 18-month deferral, we're just really as nimble as possible here to have all optionality that if this recession doesn't happen or it starts to turn in Q3 of this year, we're going to pivot right back to growth like what we demonstrated in 2020, 2021 and 2022. So to answer your question about $100 million to $125 million in 2023 with the remainder mostly being in 2024. And again, there is that optionality to expand from that $320 million to $400 million and that could even -- a lot of that could impact this current year as well if we saw that last feedstock for that 777.

Okay. No, that's clear. And Scott maybe another question for you. Just obviously you guys had I guess what you would call excess costs in 2022, a lot of which are not going to repeat in 2023. Can you just maybe talk through I guess, some of the details there as to what you expect to see from a total cost, sort of, reduction based on some of the -- I don't want to call them one-time costs, but some, I guess, excess costs that aren't going to recur that happened in 2022?

Yes, absolutely. With 2022 being a record year for year-over-year growth we just couldn't grow fast enough to service our customers the way they wanted to be serviced. So, when you can't grow fast enough you do everything pretty much at any cost. Now that's overstating it, but we ran very high cost for overtime and for training. And to some extent for temporary employees. And when you look at training, it's kind of a double whammy here, because the training was very, very expensive. If I remember earlier in the pandemic, the training was very minimal, because we're hiring pilots that were already certified to fly 757s or 767s, because they were laid off from passenger airlines. So that was a very different dynamic than what we experienced last year. So, we went from being able to train pilots measured in days to training pilots measured in months. And when you're taking several months to train a pilot to be certified to fly 767 or 757, in the meantime, you're running overtime to backfill for those positions. So, we've ran very, very high cost to onboard all that revenue growth last year, so as we noted, we started to make plans in December they settled into place in January and to a larger extent in February to deal with those three things. Overtime, training and temporary employees. Then there are other things as well.

And I must add that when we saw the slowness, it wasn't in October and November as much as in December. And we already had built schedules, network and everything getting ready for December. And we did not see the volumes that we normally see in December. So, the first signs of slowness that’s were in -- literally in December, and whereas the cost structure, the network was all built up, so it's very difficult to change everything on a day-to-day basis. Because you expect that, okay, the volumes don't show up on December 5th, but they might show up on the 6th or 7th. So, you can't take the cost down that quickly. But on top of the cost that Scott is talking about, we are also now rightsizing the network. We keep in mind, we do have a fairly good flexibility to switch between 767s, if we need to consolidate more cargo and also split certain routes into 757 for more operational efficiency. So that exercise is ongoing right now and we expect that within the first quarter we'll make tremendous adjustments in our costs, training, overtime, rightsizing the fleet and basically freezing everything else that does not produce a dollar.

Okay. No, that's great color. Thanks very much.

Thank you. The next question is from David Ocampo from Cormark Securities. Please go ahead. Your line is now open.

Thanks. Good morning, everyone. Scott, maybe a quick clarification just to kick things off. On the margin commentary that it should hold flat or are you expecting margins to hold flat with the Q4 or the overall margin level that you guys’ experience in ‘22?

Yes, getting back to the 2022, just our historical type of EBITDA margin in that 30% to 34%, 35%.

Okay, got it. And you guys provided some pretty good commentary on the CapEx assumptions there. What's the financial impact to the EBITDA line, because you guys did provide or previously provided 2026 targets on EBITDA?

So, we will push those out, right, Scott, I mean…

Yes, it's a deferral and we don't again, we're just going to be able to pivot in either direction quickly. We don't know if it's a six month, 12-month or 18-month deferral, but we're going to -- so really, you're pushing those things out, I would say, on average of about a year. And if you look back to that long-term plan 2026 was a pretty light year for CapEx anyways. So, it's almost just shifting 24% to 25%, 25% to 26% just for round shifting. But we're still very, very committed to -- we just can't emphasize enough what Ajay was talking about there that we're retaining our conversion slots. That's what's most critical to this business is that we can get the feedstock quickly, but we've still got our conversion slots that we can go ahead as planned.

Right. So, I guess your assumption is that you could still hit that $500 million to $550 million of EBITDA, but it may not be ’27, but ’27 or ’28?

Yes. We didn't know there was going to be a global recession last summer and last September when we had that Investor Day. Otherwise, we probably would have been less bullish on the 2023, but…

But our key thing was that we still believe in a good business case for us expanding, but only if the market, sort of, creates that opportunity. And if it's not, even when we built the business plan about a year ago, we knew that if there is an issue, we can get rid of some of these costs and airplanes very, very quickly in which we did while maintaining that we are in the game, but we don't have the cost associated to being in the game.

Got it. And then maybe just as a final one, when you think about your infrastructure investments for the 777s like new hangers and whatever other infrastructure investments you have to make. With the deferral, the 777s, can you still hit your return on invested capital targets with the less scale?

So, we will have some deferrals on hangers that we wanted to build for and tooling and training and so that's all been deferred. And also keep in mind that one of the things we're looking at is if we do build the hanger for 777, it will be able to take two 767s also. So those hangers would be very useful to us no matter which part of the country we build in the Vancouver, whether we build in Hamilton or whether we build in Halifax. Those hangers with triples can take 777s. And if let's say for example, we don't need it for 777s and we can put 767s in it for our heavy checks. So those would not go waste, so hangers is a good -- we are sure of hangers now even for our 767. So most likely the hangers will go ahead, but it's not going to be just a 777 hangar, it’s going to be hangar. But keep in mind, we're operating almost 40 aircraft from now, so we only have two hangers in Hamilton. So, we could use two hangers somewhere else.

Okay, that's it for me. Thanks a lot, guys.

Thank you. The next question is from Kevin Chiang from CIBC. Please go ahead. Your line is now open.

Good morning, Kevin.

Thanks. Good morning, everybody, and thank you for taking my question. Maybe to start off with lot of good details on some of the moving parts on the employee expense line and I talked about the OT, the training and the use of temporary employees. But if I look at maybe just crew costs as a percentage of revenue extra charge, you're tracking about 12%, 12%-plus in 2022, you're sub-10% in 2019. Do you see an opportunity to throttle that line item to maybe back where you saw in 2019 from an intensity perspective? Or is that cost just structurally higher here as a percentage of revenue just given the growth profile of the company over the past couple of years here?

Yes. Thanks, Kevin. And that's exactly what we did during planning season as we benchmark back to 2019, because that's when we were -- our primary focus was cost controls and we -- just before that massive growth where we doubled the size of the company in a short period of time. So yes, that's exactly the plan here. Obviously, there's been some inflation since then. But with critical mass, with the size, with the new simulator in Hamilton to reduce training, all the stuff is going to get us back to our routes where we've always said it, I think on every call I've been on with Jamie talks about how we manage our cost per block hour. We manage everything to the minute, that's exactly what we're describing here is really getting back to our routes and what we demonstrated in all those years leading up to 2019.

And Kevin, let me add something more to it that one thing that changed in 2020 was the Duty Regulations by Transport Canada. So that part of it, we won't be able to accomplish it, that's what the government is and the Duty Regulations are. However, we have our own SIM now, which saves us travel days, training outside, hotels, airfares, all that. So, we're trying to find how do we make up for those extra cost for the Duty Regs and we are constantly focused on that. So, our training costs will come down, our other costs will come down and we want to get closer to the 2019 levels. But one thing that we will not be able to do is there will be some cost that won't be able to be -- able to cut, which is the new Duty Regulation. So -- but we are trying to offset with other types of savings in it.

You know, that's a great reminder and great additional color. But maybe just one of the house a big question again just on the employee expense line or the employee line. The headcount number was up pretty significantly, sequentially from Q4 versus Q3. And just when you report that headcount number, would that include temporary employees some of that variable labor you might be able to pull on? Or is that just full-time employees, and if it is the former, are you able to quantify how many temporary employees you would have used during peak season of Q4 or 2022?

Yes. That excludes our temporary employees, but what you saw there was some flexing up for peak with the part time employees, so there's a little bit of noise there in terms of they're not exactly full-time equivalent.

Okay. That's helpful. That's it for me. Thank you very much.

Thank you. The next question is from Chris Murray from ATB Capital Markets. Please go ahead. Your line is now open.

Yes, thanks folks. Maybe turning back to some of the newer contract wins with Canada Post. Just, you know, we -- if you go back a couple of calls, we had talked a little bit about, you know, maybe having an adjusted pricing or something like that. Can you walk us through how the structure of those contracts look? And if there were any major changes from how they were designed the last time you signed them?

Some of that information, Chris, you can appreciate our confidential, we're bound by the confidentiality with the customer and we also don't want to get into too much contract stuff especially with a lot of competitors trying to get into the business, which is kind of tough, because we have them locked up. But we don't like to release a lot of confidential information. But the contracts were done seven, eight years ago. The market has changed a lot. Our financial profile has changed somewhat as well. And I think we want our customers to grow. One thing I can tell you is that there are enough growth incentives for customers to take advantage of the unused space and grow in those areas. So that would be the basic difference. That I can -- I'm able to tell you or share with you is that we've created some value-added features that our customer contracts that some of the growth could be at a lesser of a price to -- for them to go sell areas that they normally don't look at. So for example, give you -- there might not be stuff being sold from Winnipeg to Vancouver, for example. So they've never looked at it as they would all [Technical Difficulty] those to be selling Hamilton, Vancouver. So we have said, look, we have some space from there and why don't you go look in the market and see if we can get more business. So, some of it -- so you might say, okay, are you getting a discounted growth? Yes, we're getting a discounted growth, but that's coming in areas that are not being used. So overall, it will be net positive. So those are some of the things that we have offered our customers some incentive to go out and develop more business on areas that we could use as a filler space as well.

Okay, that's helpful. And then just thinking about the fleet, if I kind of compare the Q3 fleet plan to Q4, the numbers 757 seems to have stepped up a little bit more. I think you've got four additional aircraft coming early in ’23? Can you talk a little bit about your ability to use the 757 in the domestic market? And your ability to use that aircraft to flex down if you need too, so if we do get some softness? And would the [767s] (ph) in the domestic market then, would they just turn into maintenance spares? Or is the plan still define something profitable or to do with those even in this climate?

So, Chris, one of the things we never had the luxury in the past three years to have maintenance where operational spares, hot spares, as where customers are asked because there were no aircraft available in up to 2022. So, the 757 and the 767 gives us flexibility now to have a spare of each kind to maintain our service levels. Also -- it also gives us a maintenance fare for when the planes go into [seat checks] (ph), but also the flexibility of monitoring our network on a daily basis almost that if you only have 80,000 pounds going to one station, we can put the 757 on and save a lot of operating costs rather than putting a 767 on. Similarly, if the volumes are more one day, we could switch it to a 767. So a combination of that strategy will help our overall cost structure to be better, but also keep in mind that with the growth we saw in the past couple of years, especially even in the domestic market, we were very focused on in terms of having the right number of aircraft flying for our network and leaving us at 757s and 767s for charter work. So, there is a lot of opportunity for those. So yes, we did buy some extra 757s, but most of them are doing the network or acting as payers or -- so our domestic fleet is fully pretty well deployed except two 767s, which we feel one of them is being leased now by our partner in the U.S. 21 Air, because they needed that aircraft. So, we had the flexibility to place one of our B767-300 there. And I think we are also in discussions with many other clients to place the next one. So, there is a couple of spare aircraft that we have more than what we need, but we are confident that those particular aircraft will be placed in the next coming months.

Okay. That's helpful. Thank you.

Thank you. The next question is from Walter Spracklin from RBC. Please go ahead. Your line is now open.

Hi, everyone and good morning. This is [James McGarrigle] (ph), I'm on for Walter this morning.

Okay. Good morning, James.

Good morning. I just have a quick housekeeping question not to start on the fleet expansion, I know you spoke to the 777s earlier on the call. But I just want to clarify that right now, the only planes that are not contracted with DHL are three 767s and that you have the option to cancel two of those. Do I have that correct?

Yes. Perfect, perfect. And I know my other question was on DHL, I know they announced an increase to the South American investment in that cargo, which got a new route from that as well, so congrats on that. So, it seems like DHL is investing heavily for future growth despite some immediate term volume headwinds. So, is this consistent with what you're seeing from your other large customers? And how are they talking to you about your -- their capacity needs longer term? And are they still bullish on the e-commerce outlook into ‘24 and ‘25 just given some of the recent headwinds we're seeing?

So, let's take the e-commerce element first. Yes, the e-commerce people are bullish. But as I had mentioned in the call earlier, they're not bullish with the hockey stick growth, they're more looking at anywhere between 5% and 10% type of growth going forward, that's what our customers tell us, that's number one. Number two is DHL investing in spite of all the rhetoric out there about recession and everything. And let me say this to you, so DHL or any international carrier whether it's UPS, FedEx, their business. And again, I don't get into their business from what I could see and what I can tell and what I've been told is the biggest issue or driver for them has been the China business. So, if everybody is down 37% to 44% on the China lane, because of China's no COVID policy. The factories were closed. The trade relationships have been bad. So that has been the major problem for all companies like DHL is the China business. Europe has remained strong. Mexico, South America remain strong. And if China does not improve, obviously, it's a problem globally that everybody would face. I'm sure you have seen articles come out in various publications about empty ships and empty planes out of China, so that is the major problem. One area is driving pretty well the whole world on shipping. Now the good part is that a lot of companies are now shifting focus from China and going to -- for example, India. Their iPhones are being made in India now. Glove business is moving from China to Vietnam. [Ropes] (ph) are being made in Thailand now, so there is a lot of shift of industrial stuff that was made in China to reduce the dependence on China to other countries. So when these things start functioning well, it will take some time to adjust, but it will settle down that China will maintain some, but they would certainly lose some shipping to other countries. So that is the major culprit in this whole exercise, as far as the shipping is concerned, it’s not a global phenomenon. Yes, people bought less in December on e-commerce, because people were too busy spending their disposable income on travel, because that's where you saw the big money was being sent or restaurant or resorts, because people were locked up for three years. And people were stocked up for three years and locked up for three years, so that's why we saw the decline in December. So our customers still feel that as for the e-commerce side of it, it will come back up as for the ACMI side of the trade is concerned. Yes, until the China things improve, it will be a bit lower. But as I said, automate markets are coming up and there will be shipping, if not from China from somewhere else.

I appreciate the color and I'll turn the line over. Thank you.

Thanks, James.

Thank you. The next question is from Tim James from TD Securities. Please go ahead. Your line is now open.

Good morning, Tim.

Good morning, everyone. Thank you very much for the time. My first question, I just want to look at the return on invested capital. I'm wondering, if you can talk about how you see that trending in 2023? And then maybe in the two or three years period beyond that relative to what you reported for the full-year 2022?

Tim, Sanjeev here. We still expect that in 2023, it will be in the low-teen to mid-teen range. And we expect that as our ACMI business will grow, our return should grow along with it, but it all depends on economic environment when that growth will happen. But we will be able to maintain this return on invested capital, what we have reported in the current quarter. So, between 13% to 16%.

Okay. Thank you. My second question, thinking about the market environment going forward over the next couple of years, should we, kind of, view the general global environment when thinking about how likely you would be to use those conversion slots that you've maintained? Or could there be, sort of, unique opportunities that maybe go against the general headwinds that we see in the global air cargo market that maybe provide you with what you need to say, hey, let's go ahead and take up and use those conversion slots.

Let me put it -- those conversion slots can also be sold, transferred and deferred, so we're not married to saying that we are going to use them. We'll use them only as we've always done is in this case, we had eight of them coming 777s and four were sort of committed and four were for our growth. So being, sort of, on a cautious side and maintaining flexibility, we were able to sell the four and maintain the slots. So [Indiscernible] so if we find that the market is not maturing, there's enough people lined up to get conversion slots, because we have the early ‘24, ‘25 conversion slots. So, there's quite a bit of demand for those conversion slots, so we would be happy to either sell them if the market didn't mature or we could convert the plane and sell the plane or dry lease the plane so -- or fly commercially or do an ACMI. So, there's a lot of options. And I think what we have seen in this market is if I had these 777s in the COVID environment 2021, 2022, we would be looking at $500 million of EBITDA today. So in our organization, we don't want to lose the flexibility of ramping up with a very little cost associated with it and that's the model we have created.

Okay. That's helpful. And then my final question, you've provided some good pieces of information on the DHL business and the opportunities there. I'm wondering if you can sort of reflect on their behavior like in terms of routes and capacity in the supplier group that they have. Anything you've learned now that we've seen, kind of, a turn or a weakening in demand, has there kind of use of your fleet, of your capabilities, kind of, aligned with what you anticipated? And then have you, sort of, learned anything or any general observations you could provide to us there?

Jamie, you want to take that?

Yes. Thanks, Tim. Yes, and I think it's been exactly what we've been articulating for the last couple of years. Obviously, our relationship, we have an operating agreement -- five-year operating agreement with DHL, which is unique, nobody else has that type of ACMI agreement in the world. We obviously are the, if not number one, if not number one or number two in terms of on-time performance and reliability, which has enabled DHL to enhance its service level to its customers around the world. And of course, we have a financial agreement with the warrant deal that we have, so there's an incentive for them to reach certain revenue milestones. And we've seen exactly what we had been articulating for the last couple of years. There were some changes in the ACMI, DHL flying in 2022 that I alluded to earlier where we switched some routes or they switched some routes that we're operating for most of the year out of North America into Shanghai. China, when that demand dried up, those routes were switched and we kept the aircraft on other routes into Central and South America and in actuality one of the routes we actually replaced in American Carrier that was flying there. So that was -- what we anticipated and had articulated to the market that we would expect and it's what we would continue to expect in 2023 and 2024 as we go forward.

Great. Thank you very much, Jamie.

Thank you. [Operator Instructions] The next question is from Stephen Anson from Raymond James. Please go ahead. Your line is now open.

Good morning, guys. Good morning, everyone. Thank you. Thanks for the time. I'm going to stay on the macro theme that Tim was touching on here a moment ago. I think if you suggested the mainline carriers have been bringing on their own dedicated cargo aircraft of late, but you've been quite successful at extending all of your ACMI contracts with your key strategic partners here. So I'm just trying to wrestle between those two dynamics and hoping you could speak to some of the supply side dynamics in terms of future capacity coming from those other carriers and whether that impacts your ability to deploy new aircrafts or not at all? Thanks.

Jamie?

Yes. I think just to clarify, you're specifically talking about other domestic cargo operators like Air Canada and WestJet. And if so, I mean on the WestJet hasn't even started operating for 737, they're still parked in Calgary. I think they've intended to -- or proposed an intended domestic schedule, which really doesn't match up, doesn't compete at all with our -- from what we've seen from our domestic overnight network and really part of the reason that we extended and renewed the agreements with our major customers was to alleviate that competitive question that people had. In terms of Air Canada, I mean, they're operating 767s. But as we've noted before, the end-to-end where we see those aircraft flying are primarily -- not primarily, they're exclusively on international routes where Air Canada cargo had strong belly cargo capacity and demands pre-COVID where they continue to support those belly cargo -- historical belly cargo customers during COVID flying passenger aircraft without passenger and then those routes that had been example would be from Bogota, Colombia to Toronto connecting to their international network where now as passenger travel has been reinstated, it's reinstated with more narrow body aircraft that don't have the cargo -- belly cargo carrying capabilities that the aircraft that we're operating on that route pre-COVID, so they use that to compensate and ensure that the cargo demand that they have. And again, those aren't markets that we compete in. We're very confident in obviously our domestic and our ACMI business and our capability of competing on a reliability level. We have a 20-year plus track record to stand on.

So really is the demand environment that is critical in terms of deploying aircraft going forward, not anything to supply side that you see it?

Correct.

Very helpful. Thank you.

Thank you. The next question is from Fadi Chamoun from BMO Capital Markets. Please go ahead. Your line is now open.

Hi, this is Michael Goldie on for Fady. How is Q1 ’23 tracking so far both in the domestic network and ACMI is softness extending from December or is there some sort of improvement?

Jamie?

Yes. Good morning, Michael. No, excuse me. Yes, I think the -- certainly the peak period and as Ajay was alluded to earlier, when somebody have a unique peak period for us, it was very strong in October and November and then we just saw after U.S. Thanksgiving some deterioration in demand that impacted us in December, which historically December is usually the heaviest month. I think that plateaued in December and what we've seen in January and February so far on the domestic side is a little bit flat, little low-digit as we commented earlier, low-single-digit year-over-year revenue growth. The ACMI business is still up, because of the very fact of the three additional routes that I noted before that we started for DHL in 2022 that we'll get the full annualized impact in 2023, although on a macro level maybe on lower block hours or still well above the minimum just because of the nature of the routes that we're flying those aircraft versus what we may have been flying them in 2022.

Okay. And how is the charter market looking right now? I think you're able to get more than expected revenues there in the fourth quarter? Is that continuing into the new year or coming out of peak charter opportunities or a bit lighter now?

No, demand for charters has remained very strong. We took advantage of the opportunity in Q4, because particularly in the month of December where again historically because of the peak season capacity demands for the domestic network and for the ACMI network, we actually historically always embargoed charters during the month of -- latter part of November and December, because we typically need those aircraft and crews to support the peak volume needs of our domestic and ACMI business. When we saw that softening, we freed up aircraft and crews and we took on additional charter business -- ad hoc charter business in the month of November and December, significantly higher than we would normally have in Q4. And we're seeing that trend continue into January and February and we're going to take advantage of that opportunity by freeing up additional aircraft. As Ajay said, we're bringing aircraft into the fleet to replace our peak -- sorry, our operational detects and hot spares, but we'll also designate aircraft and have more flexibility to designate aircraft as dedicated to charters during this year. The demand is for at least for the first month and a half has stayed very strong.

Okay, perfect. Thank you very much guys.

I mean keep in mind in 2022, we had lots of -- in January, February, we had a lot of PPE and China charters, because people were running out of masks and others -- sorry? Yes, so we don't have that kind of charters today, where supplies for COVID are still being carried. So, there would be some differential. But as the market generally goes for charters without the COVID impact, we're seeing quite a few charters going on.

Thank you. There are no further questions registered at this time. I would like to turn back the meeting over to the moderators.

Thank you everyone. Appreciate you joining us for today's call. Have a good week.

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