Wings Magazine

Transat CEO says disappointing results won’t last

March 15, 2012, Montreal - The head of Transat A.T. urged impatient shareholders at their annual meeting Thursday to have faith in the tour and travel company's plan to return to profitability.

March 15, 2012  By The Canadian Press

"I myself am impatient,'' CEO Jean-Marc Eustache said Thursday after reporting another quarter of losses.

He said the Montreal-based company, which owns Air Transat and a host of vacation-oriented businesses, has a good plan and strategy to restore profits. But, he added, some time will be required.

"Our past speaks for itself, and with our track record, and our market presence, a little patience is all that is required before we see a recovery, and a fully convincing one at that,'' Eustache said.

Transat announced that losses were deeper than forecast in the first quarter of its 2012 financial year as restructuring efforts failed to stem the impact of higher fuel prices.


Its loss grew to $29.5 million, or 77 cents per share in the three months ended Jan. 31, compared with $13.4 million loss, or 35 cents per share, a year earlier.

On an adjusted basis, after-tax losses were 79 cents per share, deeper than the per-share loss of 61 cents expected by analysts, according to Thomson Reuters. It compared to 51 cents a year ago.

Transat's first quarter is a seasonally weak period that has has generated profits only twice in the company's history.

Revenue increased to $829.3 million from $810.2 million.

"Despite a good overall strategy, we need to continue our efforts to execute better,'' Eustache said.

Excluding fuel, the first quarter results would have been better than last year, he added.

High aircraft fuel costs and market conditions made it impossible to increase selling prices sufficiently to fully offset the increase.

Transat's restructuring in Canada and France is expected to improve margins by $20 million to $25 million in 2012, up to $40 million in 2013 and $50 million in 2014.

It will save about $11 million annually from the elimination of 143 positions in October.

Optimization of its IT systems are expected to save $20 million annually as of 2013.

Transat also plans to retrofit its aircraft with new entertainment equipment starting next month.

Fuel costs rose 35 per cent. Intense competition to sun destinations prevented Transat from passing higher costs to customers.

Ben Vendittelli of Laurentian Bank Securities said the results showed no signs that restructuring efforts implemented in the fourth quarter have resulted in cost savings to offset hugher fuel costs.

In fact, salaries and benefits increased six per cent due to hires for new aircraft.

"We are not only disappointed with the results but also with the inability to contain costs and lack of improvements in management's outlook,'' he wrote in a report.

Transat indicated results from the key second quarter could be worse than last year's five cents per share loss as cost savings should be offset by higher fuel costs.

Its capacity to the so-called sun destinations is up two per cent, load factors are similar to last year and average package prices are higher. But fuel costs and the U.S. dollar are higher.

Transat said its transatlantic capacity, load factors and bookings for the coming summer are similar to last year.

Benoit Poirier of Desjardins Capital Markets said it appears the fuel surcharges will largely cover higher fuel costs on flights to Europe.

He urged investors to remain on the sidelines in light of the disappointing results.


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