The FINANCIAL — Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, posted revenues of $1.0 billion for the quarter ended April 30, 2015, compared with $1.1 billion in 2014, a decrease of $100.1 million, or 9.0%.
The Corporation recorded an adjusted operating income1 of $3.4 million, compared with $0.0 million in 2014; and a net income attributable to shareholders of $24.7 million ($0.64 per share on a diluted basis), compared with an adjusted operating loss attributable to shareholders of $7.9 million ($0.20 per share on a diluted basis) in 2014. Before non-operating items, Transat reported a quarterly adjusted net loss3 of $6.6 million in 2015 ($0.17 per share), compared with $7.6 million ($0.19 per share) in 2014, according to Transat.
“These better than expected results point to an improvement of our performance on sun destinations, masked by the weak demand in France and a strong US dollar, and owe much to the implementation of our strategic plan. The internalization of narrow-body aircraft, in itself, induced a favorable variance of $22 million for the winter,” said Jean-Marc Eustache, President and Chief Executive Officer of Transat.
“For the summer, early signs on the transatlantic market are positive, as global market capacity is up 7%. Sales volumes are in line and margins are up. If the current trends hold, the Corporation expects its global summer results to be similar to those of last year, which were the second-best of the company’s history,” added Mr. Eustache.
Second-quarter highlights
The Corporation posted revenues of $1.0 billion, compared with $1.1 billion in 2014, a decrease of $100.1 million, or 9.0%, and an adjusted operating income1 of $3.4 million, compared with $0.0 million for the same period of 2014. During the quarter, the Corporation’s capacity on the Sun destinations market was down 6.2% from the previous year and its overall number of travellers declined by 6.9% (all market segments). Average selling prices were higher than in 2014.
Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $70.7 million (7.5%) during the second quarter compared with the same period in 2014. The decrease stemmed from the decision to reduce supply by 6.2% on the Sun destinations market, and by 5.9% on the transatlantic market, hence the overall 6.3% decrease in the number of travellers. Average selling prices were slightly higher. During the quarter, the Corporation recorded an operating loss of $0.9 million (0.1%), compared with one of $11.7 million (1.2%) for the same quarter last year. The favorable variance in operating loss stemmed from lower operating expenses, due to cost-control measures, and to higher selling prices. The improvement was offset in part by the depreciation of the Canadian dollar versus the US dollar, which, even in light of lower aircraft fuel prices, led to an increase in operating expenses on sun destinations, especially for packages.
Ocean Hotels, which is 35% owned by Transat, contributed $3.7 million to the Corporation’s quarterly net income, compared with $4.0 million in 2014. Transat’s equity participation in Ocean Hotels accounted for $94.5 million in assets as of April 30, 2015, compared with $77.5 million as of April 30, 2014.
Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $29.4 million (16.5%). Revenues also decreased in local currency. The variance is attributable to a 11.4% decrease in the number of travellers, especially to North Africa and Senegal. Average selling prices were similar to those of the same period last year. European operations recorded an operating loss of $8.8 million (5.9%) for the quarter, compared with one of $1.4 million (0.8%) in 2014. The higher operating loss stemmed mainly from the lower number of travellers, and lower margins on tours.
First six-month highlights
The Corporation posted revenues of $1.8 billion, compared with $2 billion in 2014, and an adjusted operating loss1 of $32.4 million, compared with $23.9 million for the same period of 2014. During the period, the Corporation’s capacity on the Sun destinations market was down 6.3% from the previous year and its overall number of travellers declined by 7.4% (all market segments). The unfavorable variance in operating loss was mainly attributable to a lower number of travellers and lower margins on tours in France, due to weak market conditions.
Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $114.0 million (6.9%) during the first six months, compared with the same period in 2014. The decrease stemmed from the decision to reduce supply by 6.3% on the Sun destinations market, and by 3.2% on the transatlantic market, hence the overall 7.4% decrease in the number of travellers. Average selling prices were slightly higher. During the first six months, the Corporation recorded an operating loss of $32.0 million (2.1%), compared with $36.7 million (2.2%) for the same period last year. The favorable variance in operating loss stemmed from lower operating expenses, due to cost-control measures, and, to a smaller extent, to higher selling prices. The improvement was offset in part by the depreciation of the Canadian dollar versus the US dollar, which, even in light of lower aircraft fuel prices, led to an increase in operating expenses.
Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $44.8 million (14.8%). Revenues also decreased in local currency. The variance is attributable to a 11.8% decrease in the number of travellers, especially to North Africa and Senegal. Average selling prices were similar to those of the same period last year. European operations recorded an operating loss of $25.3 million (9.8%) for the first six months, compared with $9.9 million (3.3%) in 2014. The higher operating loss stemmed mainly from the lower number of travellers, and lower margins on tours.
Financial position
As at April 30, 2015, the Corporation’s free cash totalled $441.5 million, compared with $404.6 million at the same date in 2014. The increase was attributable to the past 12 months’ earnings, and an increase in deposits from customers. The working-capital ratio was 1.01, against 1.04, and deposits from customers for future travel amounted to $578.4 million, versus $540.3 million a year earlier. Off-balance-sheet agreements, excluding contracts with service providers, stood at $656.2 million as at April 30, 2015, compared with $690.3 million as at October 31, 2014, the increase being attributable to the rise in value of the US dollar against its Canadian counterpart, partially offset by payments made during the period.
The Company initiated a Normal Course Issuer Bid on April 15, 2015. As of May 31, 2015, it had bought back 334,000 shares at an average price of $6.53, for a total value of $2.2 million.
Outlook
Summer 2015 – The transatlantic market outbound from Canada and Europe accounts for a substantial portion of Transat’s business during the summer season. For the period May to October 2015, Transat’s capacity and load factors on that market are similar to those of the summer 2014. To date, 65% of the capacity has been sold and selling prices of bookings taken are approximately 2.6% lower, compared with the same date in 2014. If the Canadian dollar remains at its current value against the U.S. dollar, the euro and the pound, and if fuel prices remain stable, operating expenses will be down 4.4%.
On the Sun destinations market outbound from Canada, for which summer is low season, Transat’s capacity is higher by 13% than that for the previous year. To date, 44% of that capacity has been sold, load factors are 1.6% lower, and selling prices are 0.6% higher. If the Canadian dollar remains at its current value against the U.S. dollar, and if fuel prices remain stable, operating expenses will be up 2.0%.
In France, compared with last year at the same date, medium-haul bookings are ahead by 10%, while long-haul bookings are ahead by 13%. Average selling prices are down 3.6%.
If the current trends hold, the Corporation expects its global summer results to be similar to those of last year, which were the second-best of the company’s history.
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