Transat Posts $179.5M Q2 Loss, Says "Firmly Committed" To AC-TS Merger

Anna Kroupina, Open Jaw

Jean-Marc Eustache

Transat CEO, Jean-Marc Eustache, began today’s Q2 financial call by stating, “The travel industry will be profoundly transformed. What we experienced in the last few months cannot be compared with any past event. It is in a category of its own."

Eustache presented the loss of $179.5 million in Q2 against this background. Comparative financial reporting for the same period in 2019 showed a loss of $939,000.

With the announcement of gradually resuming 23 international and several domestic routes on 23JUL, Transat’s CEO predicted travel markets segments to return as follows: 

"First we expect travel to resume with what we call VFR -- 'visiting friends and relatives' -- and then vacation travel, well before business travel. All the indications today are that after long weeks in lockdown, customers are eager to travel as soon as it is safe to do so. Several studies support this. VFR and holidays happen to be exactly the two segments in which we operate." 

Eustache added it is likely to be "several years" before demand returns to 2019 levels. 

"It is very difficult to predict. In any case, we expect Transat to operate on a reduced basis for the foreseeable future. But this is also an opportunity to review the way we do things, to simplify our structure and to become even more agile and efficient," he said.

Regarding the issue of future travel credits, Eustache said, “I think a travel credit which is valid for 24 months is a satisfactory offer for most customers under the present circumstances. However, we understand that for some customers this is not satisfactory.

However with no specific government support plan for the airline industry in Canada, Eustache said it is impossible to offer more.

"Much has been said about the American and European airlines, which have been ordered by their respective government to give refunds and some have done so. However, what is overlooked is that the government demand has been accompanied by a government plan."

Eustache noted that Transat is "firmly committed" to its proposed merger with Air Canada.

A decision by European regulators has been postponed until the fourth quarter, and the Canadian approval process is still underway.

“However, it must be noted that several factors beyond our control could influence the outcome of the proposed arrangement," Eustache said. 

"The market conditions of the world industry have been completely transformed by COVID-19. On the one hand, this is impacting our operation and cashflow and could force us to take a number of measures in response. On the other hand it could impact the ability to reach an agreement with the regulatory authorities on an adequate set of corrective measures to secure the necessary regulatory approvals."

If the required regulatory approvals are obtained and conditions are met, Transat says the arrangement is expected to be completed in the fourth quarter this year.

Strong 2020 Start Derailed By Coronavirus

The Montreal-based tour operator's flights have been suspended since 01APR due to the coronavirus pandemic, resulting in no sales since that date, notes TS. 

Revenue in Q2 fell to $571.3 million compared with $897.4 million in the same quarter last year, a 36% drop. The operating loss was $29.6 million, a decline of $26 million over last year. 

The pandemic's impact "has led to a steep decline in our results, although we were seeing a clear improvement over the first four months of the year," stated Eustache.

Transat notes that it began 2020 with "a very strong start", a course that was abruptly reversed by the pandemic and resulted in a "moderate deterioration" for the winter season as a whole, it says.

During the first six months of the year, revenues were up $45.2 million and operating income was $23.6 million higher at the end of the first quarter. This improvement continued in FEB, as adjusted operating income for the first four months of the year was up $63.3 million compared with 2019, "due to a significant improvement in the profitability of the sun destinations program, our main program during the winter season," says Transat.

In the current situation, Transat says it is impossible to predict the impact of the COVID-19 pandemic on future bookings, the resumption of flight operations announced today and financial results. 

The company has implemented a series of operational, commercial and financial measures, including cost reduction, aimed at preserving its cash.

"The extraordinary measures we were obliged to take, including the temporary layoff of 85% of our workforce, are aimed at preserving our cash flow to weather this period. Like all airline and travel industry players, we continue to explore other opportunities to enhance our cash flow."

Apart from laying off 85% of its workforce, Transat also drew on $50 million in credit, reduced compensation for senior executives and Board of Directors, performed early fleet retirements and deferred lease payments. Transat has also tapped into the federal government's Canada Emergency Wage Subsidy.

Transat says it does not at the moment provide an outlook for summer 2020 or winter 2021. 

Transat today also announced it expects to gradually resume flights and tour operations on 23JUL, 2020. Click here to read more.

Anna Kroupina

Anna Kroupina Journalist

Anna is OJ's newest member and she joins the team as a writer/reporter. She co-writes the daily news and covers events. Although she's new to the industry, pursuing a career path in travel/tourism has been a goal since her first family road trip to the Florida Keys sparked a desire to discover the world and this exhilarating, fast-paced industry.

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