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Fuel prices pressure Transat’s progress

June 9, 2011, Montreal - Transat A.T. posted revenues of $1.101 billion for the quarter ended April 30, 2011, compared with $1.060 million in 2010, an increase of $40.7 million, or 3.8 per cent.


June 9, 2011
By Carey Fredericks

The Corporation recorded a margin1 of $9.2 million, compared with $8.2 million in 2010, and net income of $8.6 million ($0.23 per share on a diluted basis), compared with $6.2 million ($0.16 per share on a diluted basis) in 2010. Before non-cash and non-operating items, Transat reported an adjusted after-tax loss3 of $0.7 million ($0.02 per share on a diluted basis), compared with $2.7 million ($0.07 per share on a diluted basis) in 2010.

"These quarterly results reflect many of the initiatives put in place to grow our revenues and maintain our leadership position on the market. However, as anticipated, these efforts have been offset by the substantial and quick rise in fuel prices," said President and Chief Executive Officer Jean-Marc Eustache.

Second quarter highlights

The Corporation's second-quarter revenues increased by $40.7 million. This increase is mainly attributable to higher average selling prices stemming from higher fuel surcharges. Transat recorded an 8% increase in the number of travellers from Canada to sun destinations. The increase in revenues was offset in part by the strength of the Canadian dollar against the euro and pound sterling, which caused a decrease in the revenues of foreign business units when expressed in Canadian dollars. The Corporation recorded a margin1 of $9.2 million, compared with $8.2 million in 2010. Although margins are slightly higher than the prior year as a result of higher average selling prices, these were curtailed higher aircraft fuel prices and the continued, intense competition on sun destinations

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Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $21.7 million (2.5%) compared with the same period in 2010. The increase is attributable to higher average selling prices offset partially by a 1.2% decrease in the number of travellers. North American business units recorded a margin of 1.1%, compared with 1.5% in 2010. The decrease is attributable mainly to the rise of fuel prices.

Revenues of European business units, which are generated by sales made in Europe and in Canada, increased by $19.0 million (10.9%) over 2010. The favourable impact from higher average selling prices was offset by the weaker euro and pound sterling. All European business units recorded higher revenues, except Amplitravel, which sells packages to Tunisia. European operations generated an operating loss of $0.5 million (0.3%) for the quarter, compared with $4.9 million (2.8%) in 2010. Second quarter margins in 2011 were impacted by the unrest in North Africa, which caused a temporary suspension of sales to Tunisia whereas in 2010, European margins were more significantly impacted by the additional costs incurred as a result of the volcanic activity in Iceland.

First six-month period highlights

For the first six months, the Corporation's revenues increased by $58.3 million over 2010. This increase is mainly attributable to higher average selling prices stemming from higher fuel surcharges. Transat recorded a 12% increase in the number of travellers from Canada to sun destinations. The increase in revenues was offset in part by the strength of the Canadian dollar against the euro and pound sterling, which caused a decrease in the revenues of foreign business units when expressed in Canadian dollars. The Corporation recorded an operating loss1 of $5.5 million, compared with $4.2 million in 2010, as margins suffered from higher aircraft fuel prices. Intense competition also contributed to reduced margins.

Revenues of North American business units increased by $40.5 million (2.6%) compared with the same period in 2010. The increase is attributable to higher average selling prices, with the number of travellers remaining stable. For the period, North American business units recorded a margin of 0.2%, compared with 0.6% in 2010. The decrease is attributable mainly to the rise of fuel prices.

Revenues of European business units increased by $17.8 million (5.8%) over 2010. The favourable impact from higher average selling prices was offset by the weaker euro and pound sterling. European operations generated an operating loss of $9.1 million (2.8%) for the period, compared with $13.4 million (4.3%) in 2010. Margins in 2011 were impacted by the unrest in North Africa, which caused a temporary suspension of sales to Tunisia. In 2010, European margins had suffered from additional costs relating to the volcanic activity in Iceland.

Financial position

The Corporation's free cash totalled $278.2 million as at April 30, 2011, compared with $ 206.7 million as at April 30, 2010. Total balance sheet debt decreased by$48.5 million during the 12-month period, to $6.9 million. The net cash4 position improved by $119.7 million, from a net cash position of 151.6 million as at April 30, 2010 to $271.4 million as at January 31, 2011. Most of the improvement over the past year is due to the operating profit and better working capital management.

Off-balance-sheet agreements stood at $618.8 million as at April 30, 2011, compared with $397.5 million as at April 30, 2010, reflecting new leases for additional Airbus A330s as part of the Air Transat fleet renewal program.

Cash flows from operating activities decreased by $23.3 million during the quarter, from $128.0 million in 2010, to $104.7 million in 2011; and increased by $45.5 millionduring the first six months, from $106.7 million in 2010 to $152.2 million in 2011. The increase stems mainly from improved working capital management during the winter.

Outlook

The transatlantic market accounts for a very significant portion of Transat's business in the summer. For the second half of 2011, the Corporation's capacity and bookings are approximately 15% higher than the actual capacity offered in 2010; approximately 60% of capacity has been sold and load factors are similar to last year at the same date.

Aircraft fuel costs, expressed in Canadian dollars, have increased by approximately 30%, including the impact of the introduction of additional fuel-efficient Airbus A330s and fuel hedging. Despite additional fuel surcharges implemented, selling prices are similar to last year.

In France, bookings for medium-haul travel are slightly behind compared to last year, due to unrest in North Africa. The decrease in bookings for North African destinations, notably Tunisia and Egypt, is partially offset by the rise on other destinations. On long-haul travel, bookings are more than 10% higher than the prior year.

Consequently, Transat expects the results of the second half to be inferior to the record results reported last year.