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Transat AT Results for first quarter of 2019

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Transat A.T. Inc. - Results for first quarter of 2019 Français

 


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Transat A.T. Inc.

Mar 14, 2019, 07:00 ET

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Higher selling prices insufficient to offset adverse foreign exchange and fuel effects

  • Revenues of $647.6 million.
  • Operating loss of $52.6 million.
  • Adjusted operating loss1 of $37.7 million.
  • Net loss attributable to shareholders of $49.6 million.
  • Adjusted net loss3 of $36.0 million.

MONTRÉAL, March 14, 2019 /CNW Telbec/ - Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, announces its results for the first quarter ended January 31, 2019.

"We're at the heart of the implementation cycle of our strategic plan. The material transformations, especially in the fleet, lead to an increase in costs, which is a necessary step in order to improve our medium-term performance. If we add fuel and currency to that, we did not yet have all the right cards in hand to improve our results. We look forward to seeing our first two A321LRs arrive in the next three months, the first step before we start reaping the benefits of the changes in the coming years," said Jean‑Marc Eustache, President and Chief Executive Officer of Transat.

First-quarter highlights

The Corporation posted revenues of $647.6 million for the quarter, which was comparable to last year. In the sun destinations market, our main market for the period, the number of travellers increased by 3.5% with a greater proportion of flight-only sales, which generate lower unit margins than packages. Average selling prices for packages were up 2.8%, whereas those for flight-only sales were down 0.9%.

Our operations resulted in an adjusted operating loss1 of $37.7 million, compared with $28.8 million in 2018. This change resulted primarily from the rise in operating costs owing to the weakening of the dollar against the U.S. dollar, from higher fuel prices and from additional costs incurred for the transition and optimisation of the Corporation's fleet. The increase in our operating costs was not fully offset by higher average selling prices in the sun destinations market.

Net loss attributable to shareholders amounted to $49.6 million or $1.32 per share (diluted) compared with $3.2 million or $0.09 per share (diluted) in 2018. Net income for 2018 included a $31.3 million gain on the sale of the Corporation's subsidiary Jonview. Net loss for 2019 includes a loss of $13.7 million related to the change in fair value of fuel-related derivatives for the quarter ended January 31, 2019. Excluding non-operating items, Transat reported an adjusted net loss3 of $36.0 million ($0.96 per share) for the first quarter of 2019, compared with $32.2 million ($0.87 per share) in 2018.

Financial position

As at January 31, 2019, cash and cash equivalents amounted to $620.4 million, compared with $749.3 million on the same date in 2018. This change resulted primarily from the purchase of a parcel of land in Mexico ($75.7 million), from the commissioning costs of aircrafts added to the fleet ($19.9 million) and from the change in the calculation of cash and cash equivalents to be held in trust following the adoption of the new revenue recognition standard IFRS 15 ($32.0 million). This impact of this change is greater as at January 31 and July 31 and should be less significant for the other quarters of the year.

The working capital ratio was 1.21, compared with 1.37 as at January 31, 2018.

Deposits from customers for future travel amounted to $752.8 million, compared with $675.1 million as at January 31, 2018, an increase of $77.8 million attributable to the higher booking volume for the second half of the winter season and the summer.

Off-balance-sheet agreements, excluding contracts with service providers, stood at $2.45 billion as at January 31, 2019, compared with $2.50 billion as at October 31, 2018. This $50.0 million decrease resulted primarily from repayments made during the quarter.

IFRS update

On November 1, 2018, the Corporation adopted IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers. The 2018 comparative figures have been restated to reflect these changes.

In short, the adoption of these standards resulted in a $2.6 million increase in shareholders' equity as at October 31, 2017. For the quarter ended January 31, 2018, the adoption of these standards resulted in a $3.4 million decrease in net loss attributable to shareholders. The main changes related to the adoption of IFRS 9 and IFRS 15 are described in note 3 to the interim condensed consolidated financial statements for the quarter ended January 31, 2019.

Second-quarter outlook

In the sun destination market, the Corporation's main market during the winter season, Transat's capacity is up 2% compared with last year. To date, 82% of that capacity has been sold, bookings are ahead by 0.6% and the load factors are tracking 3.1% higher compared with 2018. The impact of fluctuations in the Canadian dollar, combined with higher fuel costs, will result in a 2.7% increase in operating expenses if the Canadian dollar relative to the U.S. dollar and fuel prices remain stable. Unit margins are currently tracking 1.1% lower than at the same date last year.

In the transatlantic market, where it is low season, load factors are tracking 7% ahead of last winter. Prices are currently 3.0% lower than those recorded last year.

If these trends continue, Transat expects that second-quarter adjusted operating income could be lower than the restated amount of $12.1 million for 2018.

Summer outlook

In the transatlantic market, the Corporation's main market during the summer, Transat's capacity is tracking 1% ahead of 2018. To date, 33% of seats have been sold, load factors are up 2.4% and selling prices are 2.2% lower compared with the same date last year. Fuel costs, net of fluctuations in the Canadian dollar against the U.S. dollar, Euros and Pounds have triggered no increase in operating costs to date. Unit margins are similar to those recorded at the same date last year.

Apart from these initial trends, it is still too early to draw any conclusions for summer 2019.

Update on strategic plan

Work on the strategic plan continues, with a particular focus on:

  • cost reduction initiatives, which are progressing at the expected pace;
  • revenue and pricing management, which is continuously being improved;
  • fleet management and network planning, for which 2019 is a pivotal year, with transition efforts representing a significant burden this year, before the new fleet configuration becomes a competitive edge. The arrival of the first two A321LRs, scheduled for April and June 2019, will be a first step in the effective implementation of the new fleet;
  • and of course, development of our hotel division, with the completion this quarter of the acquisition of the second part of the land on which the first hotel will be built, in Puerto Morelos, Mexico.

All of these projects are progressing as planned, and the Corporation is confident it has the means to complete them.

Additional information

The Corporation adopted IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers, on November 1, 2018, and restated the quarterly financial information shown in the table below for 2018.

The results were affected by non-operating items, as summarized in the following table:

Highlights and impact of non-operating items on results

(in thousands of C$)

   
 

First quarter

2019

2018

Restated

Revenues

647,566

648,389

     

Operating loss

(52,555)

(43,528)

Depreciation and amortization

14,917

14,769

Premiums related to derivatives matured during the period

(90)

Adjusted operating income (loss)1

(37,728)

(28,759)

     

Income (loss) before taxes

(66,354)

(12,846)

Fuel-related derivatives and other derivatives

18,692

1,863

Gain on business disposals

(30,696)

Premiums related to derivatives matured during the period

(90)

Adjusted pre-tax income (loss)2

(47,752)

(41,679)

     

Net income (loss) attributable to shareholders

(49,646)

(3,195)

Fuel-related derivatives and other derivatives

13,683

1,367

Gain on business disposals

(30,368)

Premiums related to derivatives matured during the period

(66)

Adjusted net income (loss)3

(36,029)

(32 196)

     

Earnings (loss) per share – diluted

(1.32)

(0.09)

Fuel-related derivatives and other derivatives

0.36

0.04

Gain on business disposals

(0.82)

Premiums related to derivatives matured during the period

Adjusted net income (loss) per share3

(0.96)

(0.87)

Hedging – The Corporation records in the statement of income any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel-price risk, as well any gains or losses resulting from mark-to-market adjustments of certain hedging instruments used to manage exchange rate exposure. In the first quarter of 2019, this resulted in a $18.7 million non-cash loss ($13.7 million after income taxes), compared with a $1.9 million gain ($1.4 million after income taxes) in 2018.

The Corporation uses derivative financial instruments to mitigate exchange rate exposure arising from its expenses and/or revenues in foreign currencies. Accordingly, under applicable accounting standards, any fluctuations resulting from the effective portion of mark-to-market adjustments of these instruments that are designated as hedging instruments are recorded in the consolidated statement of financial position and consolidated statement of comprehensive income rather than in the consolidated statement of income. For the first quarter of 2019, Transat recorded a loss of $3.9 million ($2.8 million after income taxes) on these foreign currency hedging instruments, compared with $19.5 million ($14.3 million after income taxes) in 2018.

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I would say at the current market valuation that Transat AT is a logical target for an unsolicited offer to take up shares.

Best partner? AC. Next best? SWG.

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