Transat Faces Money-Losing Winter For 7th Consecutive Year
By Bruce Parkinson
Winter is not a winner for Transat.
It has been seven years since the Canadian integrated tourism operator made money during the winter season, when the bulk of its business is in the fiercely competitive, low-margin, easily disrupted sun destination market.
And it won’t happen this year, with Transat posting a Q1 loss – albeit a smaller one than last year – and offering guidance that Q2 will be a losing quarter as well.
After pointing out the massive efforts Transat has made to take costs out of the business – some $100 million to date – and yet is still losing money in winter, one financial analyst asked Transat CEO Jean-Marc Eustache whether the winter season has become “a structural negative” for the company.
“We will never be as profitable in winter as back in 2004, 2005. Just as a tour operator and distribution company, it’s not going to happen,” Eustache replied. “That’s true for everybody, not just for Transat.”
That being said, Transat will keep trying. “Can we get to profit (in winter)? Yes, I think it’s possible. We continue to make big structural changes in our organization, especially in revenue management. In future buying hotel space and selling packages will be done completely differently.”
After a strong summer season put Transat in the black for the full-year 2017, the company was optimistic about the winter season as late as mid-December. It reported then that 50% of winter product had been sold, with bookings up 9.2% on a capacity increase of 8%. At the time, Transat said that if trends continued, it expected to achieve better results than in the 2017 winter season.
“In mid-December everything is perfect. By mid-March we have a problem,” Eustache said. “It’s complicated to explain, even to our own people.”
Analysis by Transat executives attributes the shifting market to the ripple effects of last fall’s ferocious hurricane season, and specifically the impact on Cuba, which represents nearly a quarter of Transat winter sun business.
Parts of the island, especially the northern Cayos, were badly hit, and damage was extensive, as was media coverage. While Eustache says Cuba did an amazing job of mobilizing and repairing damage in a short time, public perception was slower to follow, and Cuba bookings took a dive.
As a result, Transat and other operators shifted some capacity to other sun destinations, notably Mexico, increasing competition and lowering prices there. But many who would have travelled to Cuba decided to “skip a winter,” Eustache says.
“The people who go to Cuba like Cuba, they like the people, the beaches, and they like the price. If it’s too expensive, they just won’t take a winter vacation at all. They say ‘We’ll go next year,’” Eustache said on the Q1 results call with financial analysts.
Cuba has “finally put the price down,” Eustache said, but the damage was already done. “When something happens suddenly, it takes a few months before things get back to normal.”
The Transat leadership says the Cuba hurricane impact was felt to the tune of about $5 million in Q1, but will hit results by another $10-15 million in Q2, as that is traditionally when the most Canadians head to the island.
Looking forward to the traditionally more profitable summer transatlantic season, Transat is more positive. It has boosted capacity across the pond by 17% for 2018, mostly by adding lift during shoulder periods at the beginning and end of the summer season. So far, bookings are up by 17%, absorbing the increase, but only 30% of inventory has been sold, making prognostication difficult.
Eustache identified Ireland and Portugal as Europe destinations struggling due to overcapacity on the routes. He also says there are fewer Brits travelling in this direction, countered by an increase in Canadians heading to the UK. “Overall the program to Europe is looking OK, we don’t see a problem so far.”
The company is continuing to put a focus on diversification into the hotel business. With about $750 million in free cash, Transat is poised to invest in land or buy existing hotels, with a goal of 5,000 rooms owned or managed within 5-7 years.
Eustache says the initiative is moving forward, but warns that results won’t be immediate. “It’s a new company we’re building. It won’t happen in a day.”
Bruce Parkinson Editor-in-Chief
An observer and analyst of the Canadian and international travel industries for over 25 years, Bruce uses the pre-dawn hours to prepare a daily news and information package to keep industry members up to date.