Eustache Says Transat Is Back In ‘Growth Mode’

Open Jaw
by Bruce Parkinson

Jean-Marc Eustache

Transat is ready to grow again.  

And a 20% surge in the travel giant's stock price yesterday suggests investor belief in the company's multi-year efforts to restructure towards greater profitability is growing too.  

 

It was a confident and feisty CEO Jean-Marc Eustache leading a Q4 and full year results conference call with investment analysts, who asked tough questions about the impact of terror, market capacity and fierce competition.  

 

Asked whether he was worried about next summer's transatlantic market with big capacity growth from both AC and WS, Eustache just laughed.  

 

"If I worried about stuff like that I'd be in a cemetery. I've seen it all in 38 years."

 

After posting better than expected Q4 results for the period ending 31OCT and a “reasonably good” full year profit despite a tough 2015/2015 winter, Transat officials believe they’ve done the heavy lifting that has lowered the company’s cost structure, optimized the TS fleet and better aligned the product to consumer expectations.

 

According to Eustache, despite a plunging loonie and a volatile geopolitical scene, now is the time to get growing again.

 

“We’re eager to grow the topline again. We needed to make the company more efficient first. We are ready now for growth, both organic and by acquisition,” Eustache told analysts.

 

Growth will come in a number of ways, Transat officials say.

 

After being conservative with capacity in the past few years, Transat is expanding again, with 2015/2016 winter sun capacity up 7% and winter transatlantic seats up 19%. Next summer will see transatlantic capacity growth of 9% and sun capacity up 10%.

 

A newly flexible fleet with more wide-body planes for transatlantic and narrow-bodies for sun is making that possible. This winter, over 50% of Transat travellers will head south on smaller, more efficient 737s, compared to just 28% three years ago. “The flexible fleet changes a lot,” Eustache says.

 

Further growth will come in the hotel sphere, either through acquisition or an expansion of the Transat joint venture with Ocean Hotels, which added $7 million net to the full year bottom line. With $336 million in cash at fiscal year-end, Transat is in a position to acquire.

 

“Hoteliers in the Caribbean and Mexico are making good money. It’s definitely more profitable than distribution. We’re making good money in that part of the business and with the experience we have we can grow in that business and make profit,” Eustache says.

 

On the hotel side, Transat is building on the Mayan Riviera, owns land in the D.R. earmarked for hotel development and recently purchased land in Jamaica, where it expects to start building next year. Eustache also suggested that the acquisition of a hotel company that operates “5, 6 or 10 hotels” in Mexico or the Caribbean is a real possibility.

 

Eustache also says Transat wants to expand its distribution, possibly through expansion into the U.S. market.

 

After a series of strong summers, making winter profitable again is a top priority. After dealing with the fleet, Transat sees the right product mix as crucial to winter success, and Eustache believes the company is in a much better position than it has been for the past few years.

 

“We are seeing light in the tunnel for winter. Everything we have put in place, we’re now in a position to harvest,” Eustache says.

 

Exclusive offers and distinctive product are keys to winter success, and Transat is achieving that through its ‘Collections’ and hotel partnerships. Supporting hoteliers with more summer capacity – when they really need it – will help to leverage more exclusivity.

 

Eustache also says stronger branding and marketing is having an impact.

 

“Our marketing is right on target, better than it has been in years. And by giving customers the right product, with something extra or different, that helps too. Everything is now being promoted under one umbrella as ‘Transat’ and that’s the type of move that is making the company better than it was before.”

 

Despite a warm fall in much of the country, Eustache says winter sales are up by double digits in all markets. While acknowledging the impact of a low dollar, anemic Canadian economic growth and the traveller anxiety created by terror attacks, Eustache remains confident – and unafraid.

 

“I cannot say what the future of the world will be. But I do know that this organization is in much better shape than it was a few years ago.”





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