Transat seeks new government aid, posts first-quarter loss after cancellations exceed bookings in Omicron wave

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Transat A.T. Inc., the Montreal-based holiday airline, reported a net loss of $114.3 million in the first quarter, and said it will be seeking additional government assistance as the war in Ukraine complicates the company’s attempts to put a difficult two years behind it.

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“The last wave, Omicron, did have a significant impact on our balance sheet,” Patrick Bui, Transat’s chief financial officer, said on a call with analysts on March 10. “Our priority is to protect our treasury and to access liquidity to overcome these unprecedented times,” he added. “While we are on an upward trajectory, the impacts of COVID-19 continue, and the geopolitical landscape is evolving.”

Transat’s stock was trading at about $4.50 mid-afternoon in Toronto, down about three per cent from the start of the day. The company reported revenue of $202.4 million, too little to offset the damage caused by another round of strict travel restrictions. The Omicron wave of COVID-19 caused cancellations to exceed bookings late last year at a time when Transat’s planes might otherwise have been packed with travellers heading south to escape the onset of winter.

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Like many airlines, Transat has endured a lot since the pandemic swept into North America in March 2020, causing leisure travel to cease. Fewer were distracted by an ill-fated merger while trying to cope with that unprecedented event. In December 2020, Transat shareholders voted to be acquired by Air Canada, but the European Commission rejected the acquisition, citing concerns about preserving market competition and avoiding the creation of a monopoly.

The company disclosed in its fourth-quarter earnings report that it had borrowed $310 million from the federal government to issue refunds to travellers, and has taken an additional loan of $40 million this quarter for a total of $350 million in additional debt.

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Bui described the company’s request for additional government aid as “prudent,” given Transat is facing new headwinds from the war from a “cash-burdened” position. He said Transat had managed to negotiate more favourable terms on its existing government loans, including an extension of a deadline to secure forgiveness on half the original loan. The deadline had been imminent, but has now been extended by 20 months, to the end of 2023.

Conditions appear likely to remain difficult. Fuel costs, a major expenditure for airlines, are rising because of the war in Ukraine. At the same time, WestJet Airline Ltd.’s planned purchase of Sunwing Travel Group’s airline business suggests that competition could become more intense.

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“We have all noticed a dramatic increase in the cost of fuel, which will again affect the entire airline sector as well as many other sectors,” Annick Guérard, Air Transat’s chief executive, said on the call.

Guérad said she expects Transat’s past investments in fuel efficient planes — the Airbus A321neoLR — to help offset the rise in oil prices due to the conflict in Ukraine and ensuing economic sanctions.

Still, Bui, the CFO, said the company plans to “remain vigilant” on fuel prices.

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Transat said it plans to launch 69 summer routes, some of which had been dropped during the pandemic, and others which are new. While summer sales appear promising, the COVID-19 testing requirements in Canada complicate the outlook, as testing remains a strong deterrent for customers.

The company is lobbying for these restrictions to be removed to allow customers to travel freely.

“We have now gathered speed again and are ready for a more satisfying summer,” said Guérard.

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