Overcapacity, Terror Blamed As Transat Struggles In Q3

Open Jaw

Transatlantic overcapacity and terrorism fears are being blamed for a Q3 revenue and profit decline at Transat.

The vertically integrated operator posted revenues of $663.6 million for the quarter ended 31JUL, compared with $704.8 million for the same period of 2015, a decrease of $41.3 million, or 5.9%. Transat recorded adjusted operating income of $16.0 million, compared with $44.8 million in 2015.

"The transatlantic market overall, and the United Kingdom in particular, has been affected by drastically increased supply, and demand that cannot keep up quickly enough, fuelled in part by terrorism-related fears," said President & CEO Jean-Marc Eustache. "We are relatively satisfied with our results, given the circumstances, but we cannot hope for a repeat of our outstanding summer-season performance over the past 2 years."

Transat says the revenue decline was due to lower load factors and lower average selling prices, resulting, among other things, from the 14% increase in overall transatlantic market capacity.

Lower aircraft fuel costs also helped push average selling prices lower. Lower operating income was also due to the Sun destinations market, where Transat says the impact of the depreciated CAD on operating costs was only partly offset by higher average selling prices.

For the first 9 months of the year, Transat posted revenues of $2.3 billion – the same as in 2015, and an adjusted operating loss of $20.7 million, compared with adjusted operating income of $29.8 million in 2015.

The operator says that during the winter season, fears prompted by the Zika virus, the threat of strike action by TS pilots, a decrease in demand for travel from Western Canada, and increased competition prevented any improvement in profitability. Additionally, the decline in the value of the CAD against the USD, combined with lower fuel costs, resulted in a $49.0 million increase in operating costs for Sun destinations packages, nearly 60% of which was offset by cost-reduction efforts and by higher selling prices.

"We are continuing the implementation of our strategic plan," Eustache said. "We should complete the sale of our France- and Greece-based operations toward the end of the fourth quarter, and we are actively working toward our objective of making acquisitions on a new source market such as the U.S., or on the Sun destinations hotel market. In that context, we have decided to postpone our decision on setting up a share buyback program."

As at 31JUL, the Corporation's free cash totalled $470.1 million, compared with $515.6 million at the same date in 2015. 

Transat expects its overall results for the 4th quarter to be lower than last year’s, which were among the best in the Corporation's history.

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