Positive Outlook As Transat’s Transformation Continues

By Bruce Parkinson

Denis Pétrin

Jean-Marc Eustache

While their employees scrambled to bring back customers from areas in the sights of Hurricane Irma, Transat CEO Jean-Marc Eustache and CFO Denis Pétrin had good news to share with financial analysts on the operator’s Q3 results call.

As reported yesterday on Open Jaw, Transat enjoyed a strong first half to the summer season. For the quarter ending 31JUL, the company nearly quadrupled its operating income from $16 million last year to $59.1 million in 2017. Quarterly profit attributable to shareholders was $26.6-million, nearly triple the same quarter last year.

The Transat execs said it was too early to attempt to measure the financial impact of Hurricane Irma, but suggested that it wouldn’t be “major,” due to the fact that it is low season for the Caribbean and Florida and the repatriation flights are minor in the scheme of things.

Revenues were up an impressive 10.5% in Q3, led by a strong transatlantic market, Transat’s major focus in summer. TS capacity on transatlantic routes was up 7.2% this year, and the airline filled most of those seats at higher selling prices than the year before – fares were up 3.4% and load factor up 1.2%, driving margin up 5.8%.

For its summer sun schedule, Transat’s capacity was up 1.9% and selling prices rose a solid 10%, with a 94.3% load factor achieved.

Q4 Outlook Is Sunny

Looking ahead to Q4, Transat has boosted transatlantic capacity by 8% this year. Fares are up 3.2% at this date and 80% of Q4 capacity is sold. On Q4 sun routes, 73% is spoken for at prices up 6.5%. Eustache acknowledged that this year’s active hurricane season “may have an influence” on the end of the summer season.

“We don’t know yet the results for the hotels (from hurricane damage), but it’s not the first time we’ve seen a tough hurricane season. We’ll see,” said Eustache.

CFO Pétrin says Q4 results should be similar to 2015, when the company reported adjusted operating income of $70.8 million. Last year the number dropped to $46.5 million.

Taking The Brakes Off

For winter, Transat has abandoned its efforts at capacity restraint that have marked the past couple of years. Eustache says global capacity for winter is up 7% while Transat is adding 8% more seats.

“Every time we try to be rational, others are not rational. It doesn’t work. So we’re going back up,” the CEO bluntly stated.

There are good signs for winter, however. With a significant portion of winter costs in U.S. dollars, Transat will benefit from a “much more favourable” exchange rate. And Eustache told analysts that hoteliers have not raised rates significantly for this winter. While it remains very early, 20% of winter stock has been sold, up from 18% at the same time last year.

Building A Hotel Company

The deal to sell Transat’s 35% stake in Ocean by H10 Hotels is expected to close in early November. At current exchange rates, that will put some $180 million in Transat’s jeans. Free cash at the end of Q3 already totalled $581 million, up $111 million over Q3 2016.

Eustache says plans are now in full swing to build a hotel company from the ground up. He told analysts that the goal is to own or manage 5,000 4.5-5-star all-inclusive hotel rooms in the Caribbean and Mexico by 2024.

To get there, Eustache says the new hotel company will invest up to US$1.2 billion, half from its own resources and half from local partners.

Transat says much more will be revealed about its hotel plans at its annual meeting in MAR 2018, at the same time the company presents its 2018-2020 strategic plan.

“We’re building a new Transat,” Eustache said. “Change after change after change.”

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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