News
Transat sets up shop in Mexico

In a couple of weeks, the Montreal-based company will begin operating in Monterrey under the Eleva Travel brand. It will cater to the two million Mexicans who travel in the summer months to Mexican destinations as well as Las Vegas in the United
States.

"This is exciting news as this is the first time in many years that we actually opened a new source market,'' president and CEO Jean-Marc Eustache said during a conference call Thursday.

"This market segment dovetails nicely with our existing business as we will gain critical mass in the summer with the hoteliers.''

Transat owns three hotels in Cancun and contracts with other facilities in Puerto Vallarta, Acapulco, Los Cabos and Ixtapa.

The program will begin small with the goal of a few thousand customers. Transat is investing $5 million over three years and expects the tour operator to be profitable in 2012.

Low-cost Mexican airline Interjet will provide the flights.

The Canadian market isn't on the flight plan for now because Ottawa slapped a visa requirement on Mexican tourists last year to curb bogus refugee claimants.

"As soon as our government solves the problem of the visas with the Mexicans, we will put a big program from Mexico to Canada,'' Eustache said, noting that the Mexican market was the fastest growing in Canada before the visa flap.

Earlier Thursday, Transat said competition and a strong Canadian dollar hurt its latest quarterly financial results. It also recorded $4 million in unexpected costs as a result of the volcanic activity in Iceland, which prevented travel to Europe for several days this spring.

Transat said its profits fell to $6.2 million or 16 cents per share in the three months ended April 30. That's down from $42.2 million or $1.27 per share in the year-earlier quarter.

Transat's revenue also fell, but not as dramatically, to $1.06 billion — a decline of $69 million from the second quarter of last year. That beat analysts' estimates by about $30 million.

The owner of numerous integrated travel-related businesses, including Air Transat, said its prices were lower than a year before because of higher competition and the strength of Canada's currency against the euro and pound.

Eustache repeatedly pointed a finger at the tour divisions of Air Canada and WestJet for adding capacity to sun destinations, resulting in very low prices.

Increased capacity to the Caribbean and Mexico will make the summer period very difficult, with no reprieve in sight for the crucial winter period, he said.

"When I look at the market in the summer and I see what's happening in the market I'm not convinced that next winter you will have less capacity on the market,'' Eustache said.

He said Transat will never again make the mistake of reducing its capacity only to see it lapped up immediately by its two large airline rivals. The company cut capacity by 10 per cent last year to stem losses. The reduction was quickly sucked up by rivals — notably WestJet Vacations and Air Canada Vacations — which increased their offerings to sun destinations as they cut capacity on their regular domestic and transborder flights.

During the second quarter, revenue from Transat's North American business units decreased by $27.5 million, or three per cent, due to lower average selling prices — although that was partly offset by a larger number of travellers.

Revenue from the company's European business dropped by $41.2 million or 19.2 per cent, despite an increased number of travellers, due to the impact of a lower euro and British pound compared with Canada's currency.

However, Transat said its capacity for the Canada-Europe market is about 15 per cent higher than it was in the summer of 2009 and bookings are also higher than this time last year.

However, average revenue per booking in Canadian dollars is similar to this time last year, due to the lower year-over-year value of European currencies, the company added.

Although the results were slightly better than expected, Cameron Doerksen of Versant Partners said there are "few reasons to be more enthusiastic about Transat shares'' given that currency will dampen gains in Europe and intense competition is unlikely to abate.