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Transat says lower loonie should make it more expensive to escape winter cold

MONTREAL – Canadian tour operator Transat A.T. is on track to posting its third-best summer ever and says it is optimistic going forward, noting that 20 per cent of capacity to sun destinations this winter has already been sold.

For the first time since 2012, the company is on the right track, CEO Jean-Marc Eustache said Thursday during a conference call to discuss third-quarter results.

“The trend is good, the operation is very good and we see an improvement . . . (over) the same time last year for the winter. That doesn’t mean that at the end we will succeed but the trend is more than good.”

Chief financial officer Denis Petrin said it’s too soon to know if next winter will be profitable since between 30 and 40 per cent of reservations are made in the month before departure.

And because fuel and hotel rooms are paid in U.S. dollars, the impact of a sharply lower loonie will be felt by the entire industry in Canada, the company said.

After six consecutive winter losses, Transat has adjusted its fleet by adding smaller planes and reducing widebodies to be more flexible, which is allowing it to increase capacity by eight per cent.

Transat said its third-quarter core earnings increased despite softer demand in France.

The parent of Air Transat and various vacation businesses said it earned $27.2 million or 71 cents per diluted share in adjusted profits for the period ended July 31.

That compared with $26.7 million or 69 cents per share in the prior year.

Transat’s net income fell to $13.1 million from $25.8 million, largely because of $14.1 million in non-cash losses related to fuel hedging contracts.

Hedging contracts provide airlines with protection against rising jet fuel prices but the contracts lose market value when the market price declines, as it has over the past year.

Transat’s revenue slipped 2.3 per cent to $920.1 million from $941.7 million, mainly because of the lower value of the euro.

Analysts had expected Transat (TSX:TRZ.B) would record 69 cents per share in adjusted profits on $942.7 million of revenues.

During the summer months, the transatlantic market is the largest for Transat — which operates in Europe, Canada, the United States and elsewhere.

North American operating profits increased 26 per cent to $26.3 million as lower fuel costs partially offset a weaker loonie. Revenues increased 2.3 per cent.

In Europe, operating income slipped by nearly half to $8.6 million as sales fell 13 per cent due to a large drop in the number of passengers and lower sales to North Africa and some Mediterranean destinations.

Transat says its fiscal fourth quarter, which ends in Oct. 31, will be “satisfying” if current trends hold — but slightly inferior to 2014, which were the second-best in the company’s history.

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