Air Transat loss narrows as sales head toward pre-pandemic levels: What to know

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Montreal-based holiday airline Transat A.T. Inc. on Thursday reported an operating loss of $93 million in the third quarter, a slight improvement over the year-ago quarter, as the cost of resuming operations post-pandemic continues to keep profitability out of reach.

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Here’s what you need to know about their earnings for the three-month period ending July 31, 2022:

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Backstory

Travel restrictions related to the Omicron COVID-19 variant began to wane near the end of February, which paved the way for improved sales, chief executive Annick Guérard said in a press release.

But resuming operations has proven expensive for Transat. May and June were “heavily impacted by a costly recovery,” Guérard said in a call with shareholders Thursday. During the quarter, the company recalled employees on furlough and retrained its crews. These “operational hiccups” Guérard said, increased the airline’s costs.

July was the first profitable month in two years because of reduced volatility in fuel prices, though they still remained high, CFO Patrick Bui said. Higher ticket prices also somewhat offset the spike in the cost of fuel, he added.

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Transat in the previous quarter implemented a fuel-hedging program to protect itself from summer fuel price increases. A continuation in elevated prices would create “strong pressure on… operating costs and profitability,” the company said in a press release.

In early September, Transat partnered with Montreal-based Nuvei Technologies Inc., a payment platform. Guérard said the partnership would expand the payment options for travellers and improve the management of the company’s working capital.

Financials

Revenue reached $508 million in the third quarter, up 3,951 per cent compared to $13 million in the year-ago quarter, when Transat had “virtually no operations” due to the pandemic. Revenue is now tracking ahead of 2019 levels.

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Diluted loss per share was $2.82 compared with $2.60 per share in the same quarter last year.

Bui said in the call with shareholders that adjusted EBITDA was negative $58 million this quarter, compared with negative $51 million in the year ago quarter.

Shares were up three per cent at $3.01 at 10:33 a.m. Toronto time.

Outlook

The company has a long way to go before it achieves full profitability. “We expect to be cash flow positive by 2024 at the latest,” Bui said.

For now, one of company’s main priorities is “preserving cash,” according to the quarterly report.

In July, Transat secured $100 million in credit from the federal government through the Canada Enterprise Emergency Funding Corporation, or CEEFC, to help it mitigate the effects of the pandemic. The funding is a cushion, Transat’s management said, in case there is a COVID surge in the fall and border restrictions are re-instated.

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The company also negotiated with its lenders to defer payment of April 2023 loans, totalling $198 million, to April 2024. Transat has also pushed other financial obligations from a due date of October 2022 to October 2023. Pushing the loans “gives us the additional resilience to see the restart period through, if we encounter more turbulence ahead,” Guérard said.

Meanwhile, the operating environment continues to improve, Transat executives said, and sales are approaching levels not seen since 2019.

“We are on track for a winter season that promises to match pre-pandemic levels,” Guérard said in a press release. “The pace of sales is currently very comparable to 2019.”

The company is forging ahead on the implementation of its strategic plan, which involves the acquisition of fuel-efficient aircraft. The company received two A321LR planes this quarter for a total of 12 fuel-efficient planes in its fleet. The company also plans to acquire three or four A321XLR aircraft.

“The worst is now behind us,” Guérard told shareholders.

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