For the third quarter:

• Revenues of $696.6 million ($733.2 million in 2017).
• Operating loss of $8.0 million (operating income of $41.0 million).
• Adjusted operating income¹ of $5.1 million ($59.1 million).
• Net loss attributable to shareholders of $4.0 million (net income attributable to shareholders of $26.6 million).
• Adjusted net loss³ of $3.0 million (adjusted net income³ of $26.9 million).

For the nine-month period:

• Revenues of $2.3 billion ($2.3 billion in 2017).
• Operating loss of $62.5 million ($24.8 million).
• Adjusted operating loss¹ of $19.4 million (adjusted operating income¹ of $23.5 million)
• Net loss attributable to shareholders of $3.9 million ($13.8 million).
• Adjusted net loss³ of $41.4 million ($17.3 million).
• Sale of the subsidiary Jonview Canada Inc. for $48.9 million on November 30, 2017.

MONTRÉAL, Sept. 13, 2018 /CNW Telbec/ – Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, announces its results for the third quarter ended July 31, 2018.

“Like most of our competitors, we’re affected by rising fuel prices, which impacted our summer results as we had forecasted in mid-June. Prices always take a certain time to adjust. We are still confident that we will meet our long-term targets, while Air Transat was just named the world’s best leisure airline by Skytrax,” stated Jean-Marc Eustache, President and Chief Executive Officer of Transat.

“During the quarter, we opened our hotel division’s headquarters in Miami and identified attractive opportunities, some of which should materialize soon.”

Third Quarter Highlights

The Corporation posted revenues of $696.6 million, compared with $733.2 million in 2017, a decrease of $36.6 million or 5.0%. The 2017 revenues included $77.0 million from the Jonview subsidiary, which was sold last November. The number of travellers was up 11.5% in the transatlantic market, our main market for the period, while capacity increased by 13.9%. The number of travellers was up 7.9% in the sun destinations market while capacity rose 7.0%. Average selling prices were similar to those of 2017 across all of our markets.

Operations generated adjusted operating income¹ of $5.1 million compared with $59.1 million in 2017. The $53.9 million decrease was primarily due to a rise in fuel prices which, combined with the foreign exchange effect, increased operating expenses by $40.3 million. Moreover, adjusted operating income¹ for the third quarter of 2017 included $7.1 million from the operations of businesses sold since then.

On a comparable basis, excluding the businesses sold recently (Ocean Hotels and Jonview), adjusted operating income¹ decreased by $46.8 millioncompared with the previous year.

Net loss attributable to shareholders amounted to $4.0 million or $0.11 per share (diluted) compared with a net income of $26.6 million or $0.72 per share (diluted) in 2017. Excluding non-operating items, Transat reported an adjusted net loss³ of $3.0 million ($0.08 per share) for the third quarter of 2018, compared with an adjusted net income³ of $26.9 million ($0.73 per share) in 2017.

Nine-month Period Highlights

The Corporation recognized revenues of $2.3 billion, up 0.8% from 2017. During the winter season, the number of travellers increased by 5.4% in the sun destinations market, our main market for the period. Average selling prices slightly rose across all of our markets. During the third quarter, the number of travellers was up 11.5% in the transatlantic market, the Corporation’s main market for the period, and average selling prices remained similar to those of 2017 across all of our markets. These revenue increases offset the loss of revenue from the Jonview subsidiary sold in November 2017.

Operations resulted in an adjusted operating loss¹ of $19.4 million compared with an adjusted operating income¹ of $23.5 million in 2017, a decrease of $42.9 million. During the winter season, adjusted operating income¹ improved by $11.0 million. For the third quarter, the decrease in our adjusted operating income¹ was mainly attributable to a rise in fuel prices which, combined with the foreign exchange effect, increased operating expenses by $40.3 million. Moreover, adjusted operating income¹ for the third quarter of 2017 included $7.1 million from the operations of businesses sold recently.

On a comparable basis, excluding the businesses sold recently (Ocean Hotels and Jonview), adjusted operating income¹ decreased by $30.2 millioncompared with the previous year.

For the nine-month period, net loss attributable to shareholders was $3.9 million or $0.11 per share (basic and diluted) compared with $13.8 million or $0.37 per share (diluted) for the corresponding nine-month period of 2017. Excluding non-operating items, Transat reported an adjusted net loss³ of $41.4 million ($1.11 per share) for the period ended July 31, 2018, compared with $17.3 million ($0.47 per share) in 2017.

Sale of Jonview Canada Inc.

On November 30, 2017, the Corporation completed the sale of its subsidiary Jonview, which has an incoming tour operator business in Canada, to Japanese multinational H.I.S. Co. Ltd., which specializes in travel distribution. The selling price was $48.9 million, and the Corporation recognized a gain on business disposal of $31.3 million.

Financial Position

As at July 31, 2018, cash and cash equivalents amounted to $867.2 million, compared with $580.7 million on the same date in 2017. The increase of $286.5 million was primarily due to the proceeds from the disposal of Ocean Hotels and Jonview as well as to positive cash flows generated by operations. The working capital ratio was 1.40, compared with 1.26 as at July 31, 2017. Deposits from customers for future travel amounted to $561.8 million, compared with $509.9 million as at July 31, 2017, an increase of $51.8 million attributable to higher business volume.

Off-balance-sheet agreements, excluding contracts with service providers, amounted to $2,368.5 million as at July 31, 2018, compared with $1,745.2 million as at October 31, 2017. The $623.2 million increase resulted primarily from the agreements signed during the quarter to lease two Airbus A321neos and five Airbus A321neo LRs, for delivery from 2020 to 2022, which will notably replace the wide-body Airbus A330s whose leases will expire during that period. Moreover, during the first quarter, the Corporation entered into agreements to lease two Airbus A321ceos and two Airbus A330s. The increase resulting from these new agreements was partially offset by the repayments made during the period.

Outlook

Fourth quarter 2018 – The transatlantic market outbound from Canada and Europe accounts for a substantial portion of Transat’s business during the summer season. For the period from August to October 2018, the Corporation’s capacity is higher by 14%. To date, 84% of the capacity has been sold, load factors are 1.1% higher than those of summer 2017 and selling prices of bookings taken are 2.7% lower than those recorded at the same date in 2017. Higher fuel costs, combined with currency variations, will result in a 7.3% increase in operating costs if aircraft fuel prices remain stable and the dollar remains at its current level against the U.S. dollar, the euro and the pound. It should be noted that the price of aircraft fuel increased by 11% between the beginning of April and mid-June.

In the sun destinations market, for which summer is low season, 75% of the capacity marketed has been sold. To date, unit margins are 7.2% lower than those recorded in 2017, considering the impact of higher fuel prices.

Accordingly, and considering the recent significant increase in aircraft fuel costs, the Corporation expects that its overall results for the fourth quarter will be lower than last year.

Winter 2019 – In the sun destinations market, the Corporation’s main market for the period, Transat’s capacity is higher by 3% than the previous year. To date, 25% of that capacity has been sold and load factors are ahead by 2.7% when compared to 2018. The impact of increased fuel costs, combined with fluctuations in the Canadian dollar, will result in a 3.4% increase in operating expenses if aircraft fuel prices and the dollar against the U.S. dollar remain stable.

The Corporation considers that it is still too early to give any guidance regarding winter season results, especially since comparisons have to be made with a period of 2017 before the hurricanes, which had a significant impact on the rest of the season.

Progress on strategic plan

The Corporation made significant progress on implementing the 2018-2022 strategic plan, but these actions had little impact on the current year. The plan has two primary aims: operational improvement of existing businesses and the launch of a hotel business.
For existing businesses, numerous changes were made to prepare for the coming years.

• Revenue management, pricing and network planning activities are expected to be fully reconfigured during the year, which will allow for greater fine-tuning of revenue management per flight and margin optimization;
• Longer-term network management is also being put in place to operate the Corporation’s new Airbus fleet, which will be deployed between 2019 and 2022 and will reduce operating costs and increase route density;
• Expansion of our online presence continues, which earned us the Flèche d’or for the best customer experience in the tourism, leisure and entertainment category;
• Cost reduction and margin improvement initiatives continue and should achieve their $150 million target for the plan as a whole;
• Efforts to improve customer satisfaction have been rewarded by the recognition of Air Transat as the world’s best leisure airline by Skytrax.

The newly launched hotel division also saw much progress this year, with the recruitment of its President, the opening of its Miami headquarters, and intense search for land and/or hotel acquisitions, which should enable the Corporation to close transactions in the near future.

Additional Information

The results were affected by non-operating items, as summarized in the following table: 

 

 

Hedging – The Corporation records in the statement of income any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel-price risk, as well any gains or losses resulting from mark-to-market adjustments of certain hedging instruments used to mitigate exchange rate exposure. In the third quarter of 2018, this resulted in a $1.5 million non-cash loss ($1.1 million after income taxes), compared with $0.3 million ($0.3 million after income taxes) in 2017. For the nine-month period, this resulted in a $9.1 million non-cash gain ($6.7 million after income taxes), compared with $3.5 million ($2.6 million after income taxes) in 2017.

The Corporation uses hedging instruments to mitigate exchange rate exposure arising from its expenses and/or revenues in foreign currencies. Accordingly, under applicable accounting standards, any fluctuations resulting from the effective portion of mark-to-market adjustments of these instruments are recorded in the consolidated statement of financial position and consolidated statement of comprehensive income (loss) rather than in the consolidated statement of income (loss). For the third quarter of 2018, Transat recorded a loss of $2.8 million ($2.0 million after income taxes) on these foreign exchange derivatives, compared with $23.8 million ($17.4 million after income taxes) in 2017. For the nine-month period, Transat recorded a loss of $3.9 million ($2.9 million after income taxes) on these foreign exchange derivatives, compared with $18.1 million ($13.2 million after income taxes) in 2017.

About Transat
Transat A.T. Inc. is a leading integrated international tourism company specializing in holiday travel. Under the Transat and Air Transat banners, the Corporation offers vacation packages, hotel stays and air travel to some 60 destinations in 26 countries in the Americas, Europe and the Middle East. Based in Montréal, the Corporation has 5,000 employees. Transat is firmly committed to sustainable tourism development, as reflected in its multiple corporate responsibility initiatives over the past 10 years, and was awarded Travelife Partner status in 2016 (TSX:TRZ).

NOTES

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

1. Adjusted operating income (adjusted operating loss): Operating income (loss) before depreciation and amortization expense, restructuring charge and other significant unusual items, including premiums for fuel-related derivatives and other derivatives matured during the period. The Corporation uses this measure to assess the operational performance of its activities before the aforementioned items to ensure better comparability of financial results.
2. Adjusted pre-tax income (loss): Income (loss) before income tax expense before change in fair value of fuel-related derivatives and other derivatives, gain (loss) on business disposal, restructuring charge, asset impairment and other significant unusual items, and including premiums for fuel-related derivatives and other derivatives matured during the period. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results.
3. Adjusted net income (adjusted net loss): Net income (loss) attributable to shareholders before net income (loss) from discontinued operations, change in fair value of fuel-related derivatives and other derivatives, gain (loss) on business disposal, restructuring charge, asset impairment and other significant unusual items, and including premiums for fuel-related derivatives and other derivatives matured during the period, net of related taxes. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results. Adjusted net income (loss) is also used in calculating the variable compensation of employees and senior executives.

Conference Call

Third quarter 2018 conference call: Thursday, September 13, 10:00 a.m. Dial 1-800-926-9801. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1‑800‑558‑5253, access code 21881421, until October 13, 2018.

Non-IFRS Measures

Transat prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). We will occasionally refer to non-IFRS financial measures in the news release. These non-IFRS financial measures do not have any meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They are intended to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with IFRS. All amounts are in Canadian dollars unless otherwise indicated.

Caution Regarding Forward-Looking Statements

This news release contains certain forward-looking statements regarding the Corporation’s expectation that travel reservations will follow the trends. In making these statements, the Corporation has assumed that the trends in reservations and selling prices will continue, and that fuel prices, other costs and the value of the Canadian dollar against foreign currencies will remain stable. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by the forward-looking statements contained in this news release. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, economic conditions, changes in demand due to the seasonal nature of the business, extreme weather conditions, climatic or geological disasters, war, political instability, real or perceived terrorism, outbreaks of epidemics or disease, consumer preferences and consumer habits, consumers’ perceptions of the safety of destination services and aviation safety, demographic trends, disruptions to the air traffic control system, the cost of protective, safety and environmental measures, competition, the Corporation’s ability to maintain and grow its reputation and brand, the availability of funding in the future, fluctuations in fuel prices and exchange rates and interest rates, the Corporation’s dependence on key suppliers, the availability and fluctuation of costs related to our aircraft, information technology and telecommunications, changes in legislation, unfavourable regulatory developments or procedures, pending litigation and third party lawsuits, the ability to reduce operating costs, the Corporation’s ability to attract and retain skilled resources, labour relations, collective bargaining and labour disputes, pension issues, maintaining insurance coverage at favourable levels and conditions and at an acceptable cost, and other risks detailed from time to time in the Corporation’s continuous disclosure documents.

These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements. The Corporation considers the assumptions on which these forward-looking statements are based to be reasonable, but cautions the reader that these assumptions regarding future events, many of which are beyond its control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect the Corporation. For additional information with respect to these and other factors, see the Annual Report for the year ended October 31, 2017, filed with Canadian securities commissions. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by securities laws.

www.transat.com