Eustache Sees “Significant Underlying Improvement” In Transat Results

Bruce Parkinson, Open Jaw

After posting improved results in Q2, Transat will continue on its path to cut costs, grow margins and diversify operations, with a focus on increased investment in hotels and a potential shift away from its reliance on the cutthroat Mexico and Caribbean market.

“The results look a lot like last year, but we see significant underlying improvement,” said President & CEO Jean-Marc Eustache in a conference call with financial analysts.

In fact, the results for the quarter ended 30APR were better than last, with a net loss attributable to shareholders of $8.4 million versus nearly $25 million in Q2 2016. For the first six months of the fiscal year, the net loss attributable to shareholders was $40.4 million, a significant improvement compared with $86.1 million in 2016.

Higher fuel costs, the weak Canadian dollar and fierce competition in the Sun market continue to weigh on the integrated tourism operator.

"We continued to absorb strong negative pressure from exchange rates and fuel prices, which had an impact of more than $39 million on our costs during the season,” Eustache said. “I think next winter if fuel doesn’t go crazy, the dollar doesn’t go down too much, things should be better.”

But Transat can’t count on those things, and there are other wild cards including the impact of recent terror attacks in Europe and the UK on the summer transatlantic season. With that as the backdrop, the operator will continue seeking opportunities for more profitable growth.

Transat had expected to announce a decision by now on whether to increase its 35% stake in Ocean Hotels to 100%, or sell its portion back to the private ownership of the company. But the deal – or no deal – is taking longer than anticipated.

“When the owner is private and making good money, they’re not in a hurry to sell. Sometimes it takes time to do a deal,” Eustache told analysts. Transat now values its Ocean equity stake at $109 million, and the investment contributed $5.9 million to the net results for the quarter.

There were a couple of developments on the hotel side during Q2. Eustache said a new subsidiary focused on hotels will be announced shortly, and he said Transat is talking to an individual it wants to run that part of the business.

As well, Eustache revealed an April deal that saw it purchase a stake in a hotel near Puerto Vallarta, operating under the name Rancho Banderas All Suites Resort. For $13.4 million, Transat acquired a 50% equity interest in the resort’s owner and operator Desarrollo Transimar, S.A. de C.V. The hotel currently has 49 rooms, and will be expanded between now and 2018 to 263 rooms.

Eustache also hinted that Transat may look to expand its route map to spread out the risk that comes from a strong reliance on Mexico and the Caribbean in the winter and Europe and the UK in summer. “Maybe we should do something else than just Mexico and the Caribbean,” he mused, citing “the other guy” – Air Canada and its Air Canada Vacations – that is “doing Caribbean, Mexico, domestic, transborder, Europe, Asia, a lot of things like that.”

Eustache dismissed recent news reports that attempted to make a big issue of unscheduled refueling stops on some winter flights, which CBC news has dubbed “the Mexican game.” He said the technical stops happened on 29 out of 12,903 flights this winter, usually when headwinds on routes like CUN-YYC tested the limits of fuel range on the aircraft used.

“I don’t understand why it’s a big story,” he said. “It happens every day with every airline in the world.”

Bruce Parkinson

Bruce Parkinson Editor-in-Chief

An observer and analyst of the Canadian and international travel industries for over 25 years.

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