Wings Magazine

Transat would consider layoffs to cut costs

Sept. 8, 2011, Montreal - Transat A.T. Inc. raised the possibility of layoffs as it develops a new cost-cutting plan this fall to return the tour operator to profitability despite its expectations for a challenging 2012.

September 8, 2011  By The Canadian Press

"I can't say today if there will be any or how many, but it's not excluded that there will be some, that's for sure,'' CEO Jean-Marc Eustache said Thursday during a conference call.

The Montreal-based company is reviewing its entire structure to simplify its decision making, reduce operating costs and to respond more nimbly to changes in the market.

"At the end of the day we will do what we have to do to be profitable. We are not profitable this year and this cannot continue,'' Eustache added.

He said the goal is to make between one to three per cent profit.


The challenge next year will come from overcapacity by the industry that prevents it from raising prices to cover high fuel costs. Another factor could be slow consumer demand caused by weak economic growth.

Eustache said Transat's fleet gives him the flexibility to park some planes and pay monthly leasing costs if it
can't make money on those flights.

"We will do what we have to do to be sure that at the end of the day we will make money.''

The first step to its restructuring is the shakeup of its upper management. Eustache takes the reins of the company with the departure of chief operating officer Nelson Gentiletti and Transat Tours Canada president Michael DiLollo.

Air Transat chief executive Allen Graham will become the president of Transat Canada.

The move comes as Transat lost $2.9 million or eight cents per share for its third quarter, down from a profit of $20.9 million, or 55 cents per share a year earlier. Revenue rose to $937 million from $867.3 million.

On an adjusted basis, the company earned $2.8 million or seven cents per share, compared with 70 cents last year and significantly lower than the average expectations of 54 cents per share, according to a poll of two analysts by Thomson Reuters.

Transat's shares briefly hit a new 52-week low. The stock fell 11 per cent, or 88 cents, at $7.11 in midday trading on the Toronto Stock Exchange.

Transat said part of the challenge during the quarter was offsetting a 30 per cent increase in fuel costs.

A fiery Eustache warned that the fourth quarter and next year will be challenging.

"For sure we're not at 2001 to be clear, not at all. Today we didn't make any profit this quarter for sure but we still make money.''

The tour operator has been constrained from raising summer fares to Europe to offset high fuel prices due in part to increased competition as scheduled carriers  shifted capacity from Japan following the earthquake and tsunami.

Transat said last quarter that it increased its summer capacity to Europe by 15 per cent, even though it faces increased competition from rivals such as Sunwing and scheduled carriers like Air Canada.

It expects to match the four per cent capacity increase by the industry next winter, but can adjust that downwards if required.

Ben Vendittelli of Laurentian Bank Securities called the results "very negative'' and put the company under review.

However, he added that Transat's strong results in the summer of 2010 demonstrated that its earnings can rebound when market conditions are favourable.

"We expect demand for leisure travel to rebound in line with an economic recovery, while over the long-term, scheduled carriers could remove capacity on Caribbean and Mexico routes as demand recovers on domestic and U.S. routes,'' he wrote in a report.


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