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Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, posted revenues of $808.6 million for the quarter ended Oct. 31, 2013, compared with $763.4 million in 2012, an increase of $45.2 million, or 5.9 per cent. The Corporation recorded a margin before amortization and depreciation of $80.1 million, compared with $52.9 million in 2012, and net income of $54.7 million ($1.40 per share on a diluted basis), compared with a net profit of $16.6 million ($0.43 per share on a diluted basis) in 2012. Before non-operating items, amortization and depreciation, and restructuring charges, Transat reported a margin of $80.6 million, compared with $52.9 million in 2012, and adjusted after-tax income of $54.8 million in 2013 ($1.40 per share on a diluted basis), compared with $28.7 million ($0.75 per share on a diluted basis) in 2012.
For the fiscal year ended Oct. 31, 2013, Transat posted revenues of $3.6 billion, versus $3.7 billion in 2012, a decrease of $66.1 million, or 1.8 per cent. The Corporation recorded a margin before amortization and depreciation of $110.9 million, versus $17.0 million in 2012, and a net profit of $58.0 million ($1.51 per share on a diluted basis) compared with a net loss of $16.7 million ($0.44 per share on a diluted basis) in 2012. Before non-operating items, amortization and depreciation, and restructuring charges, Transat reported a margin of $116.6 million, compared with one of $17.0 million in 2012, and net adjusted after-tax income of $62.6 million in 2013 ($1.63 per share on a diluted basis), versus an adjusted after-tax loss of $15.3 million ($0.40 per share on a diluted basis) in 2012.
“We achieved very good results on the transatlantic market and posted profits on the Sun destinations market as well as in France,” said Jean-Marc Eustache, president and chief executive officer of Transat. “As a result, we had our best fourth quarter ever as well as the best summer in our history. And for the year, we are back to profitability, with a margin improvement of $100 million. Our efforts on all fronts, including costs, product, marketing, revenue management, and so on delivered the expected results. Our cost-reduction and margin-improvement program is tracking to plan.”
Fourth quarter highlights
The Corporation posted revenues of $808.6 million, compared with $763.4 million in 2012, and a margin before amortization and depreciation of $80.1 million ($80.6 million before amortization and depreciation and restructuring charges), compared with $52.9 million ($52.9 million before restructuring charges) in 2012. The increase in revenues was attributable mainly to higher average selling prices, which more than offset the impact of the Corporation’s decision to reduce capacity on its markets (transatlantic and France), which accounts for the 5.0 per cent reduction in the number of travellers. Across all markets, average selling prices and margins were higher.
Revenues of North American business units, which are generated by sales in Canada and abroad, rose by $55.9 million (10.9 per cent) compared with the same period in 2012. The increase stemmed in part from the decision to account for all sales of flights between Canada and United Kingdom in North America, whereas a significant portion of said sales was previously accounted for in Europe. For the quarter, capacity on the transatlantic market decreased by 9 per cent compared with 2012; capacity on Sun destinations was similar. North American business units generated a margin before amortization and depreciation of $68.6 million, compared with $55.9 million in 2012. Before restructuring charges, Transat posted a margin before amortization and depreciation of $69.1 million, versus $55.9 million in 2012. The improvement in margin is mainly attributable to higher selling prices as well as the Corporation’s cost-reduction initiatives.
Revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $10.7 million (4.3 per cent) over 2012, mainly due to the aforementioned change in the accounting of certain sales in different geographic areas. European operations resulted in a margin before amortization and depreciation of $11.5 million, compared with an operating loss before amortization and depreciation of $3.0 million in 2012. The improvement in the margin is mainly attributable to higher selling prices and cost-reduction initiatives.
Fiscal year highlights
For the fiscal year, the Corporation’s revenues stood at $3.6 billion, compared with $3.7 billion in 2012. Transat recorded a margin before amortization and depreciation of $110.9 million ($116.6 million before amortization and depreciation and restructuring charges), compared with $17.0 million in 2012 ($17.0 million before restructuring charges). Revenues were similar to those posted in 2012. The higher average selling prices offset the Corporation’s decision to reduce capacity on all its markets (Sun, transatlantic and France). The improvement in margin is mainly due to higher selling prices as well as to the cost-reduction initiatives.
For the winter season, Transat posted revenues of $1.9 billion, versus $2.0 billion in 2012, and an operating loss before amortization and depreciation of $22.2 million ($18.3 million before amortization and depreciation and before restructuring charges), compared with one of $58.1 million in 2012 ($58.1 million before restructuring charges). The decrease in revenues mainly stemmed from the Corporation’s decision to reduce capacity on its markets (Sun, transatlantic and France), which resulted in a 12.0 per cent decrease in traveller numbers. Across all markets, average selling prices and margins were higher than in 2012.
For the summer season, the Corporation recorded revenues of $1.7 billion, compared with $1.7 billion in 2012, and a margin before amortization and depreciation of $133.1 million ($134.9 million before amortization and depreciation and before restructuring charges), versus $75.1 million in 2012 ($75.1 million before restructuring charges). The higher average selling prices offset the Corporation’s decision to reduce capacity on its markets (transatlantic and France), which had resulted in a 12.0 per cent decrease in traveller numbers. Across all markets, average selling prices and margins were higher than in 2012.
Financial position
As at Oct. 31, 2013, the Corporation’s free cash totalled $265.8 million, compared with $198.5 million at the same date in 2012 (including the November 2012 sale of the Corporation’s ABCP). The working capital ratio was 1.1, against 1.0, and deposits from customers for future travel amounted to $410.3 million, compared with $382.8 million a year earlier. Off-balance-sheet agreements stood at $768.3 million as at Oct. 31, 2013, compared with $557.1 million as at Oct. 31, 2012, the increase being attributable to the leasing of four Boeing B737-800 aircraft and the renewal of the leases on six Airbus A330s, offset by payments made during the 12-month period.
Outlook for the first six months
On the sun destinations market, Transat’s capacity is approximately 3 per cent higher than that marketed last year. To date, 41 per cent of that capacity has been sold, load factors are lower by 2 per cent, and selling prices are higher by 5 per cent compared to those recorded last year at the same date.
In France, where winter is low season, compared with last year at this time medium-haul bookings are higher by 10 per cent, long-haul bookings are down by 2 per cent and selling prices are down by 2 per cent.
On the transatlantic, also the low season, Transat’s capacity is 8 per cent lower than that marketed last winter. To date, 53 per cent of that capacity has been sold, load factors are lower by 6 per cent, and selling prices are higher by 8 per cent.
The Sun destinations market in Canada accounts for a substantial portion of Transat’s business during the winter season, and margins are both thin and volatile. At this early stage in the season, forecasting is difficult because of the following factors: a significant portion of capacity remains to be sold, bookings are last minute, and the Canadian dollar has weakened relative to the U.S. currency. However, to the extent that the conditions do not deteriorate, the Corporation expects to record better results than period last year for the winter.
It is extremely early to comment on the transatlantic market for the summer 2014, as only 9 per cent of the seats have been sold. Transat’s capacity is 2 per cent higher than in 2013, load factors are similar, and prices are superior.
Cost-reduction and margin-improvement Initiatives
Transat is continuing with implementation of the initiatives in its return-to-profitability plan, including measures to reduce operating costs and changes to its systems and processes. In April 2013, the Corporation also announced its decision to internalize narrow-body medium-haul aircraft (Boeing 737-800s) for its Sun destination routes outbound from Canada, starting in May 2014. The various measures (cost-reduction initiatives, additional revenues and efficiency gains) had a favourable impact of $20 million on the margin in 2012 and of $15 million in 2013. The Corporation expects another $20 million in 2014, as well as in 2015, when internalization of the narrow-body fleet will produce its full benefits.
