Transat cutting costs as it seeks to restore profits after a weak first quarter

MONTREAL – Tour operator Transat AT will create hubs in Toronto and Montreal, add seats to some transatlantic flights and look to increase revenue from ancillary fees as it seeks to boost profits amid heightened competition and a lower Canadian dollar.

The owner of Air Transat is aiming to find $100 million of cost savings and margin improvements over the next three years.

Among other things, Transat (TSX:TRZ.B) will add 30 seats on three Airbus A330 wide-body jets dedicated to routes to London and Paris.

Transat will also fly routes from Vancouver, Quebec City and Halifax to hubs in Toronto and Montreal for service to select European destinations this summer.

“When it comes profitability, there is still work to be done,” CEO Jean-Marc Eustache told shareholders after releasing a larger than expected loss in the first quarter.

On the Toronto Stock Exchange, Transat’s shares were down 53 cents at $6.17 in afternoon trading.

Savings from lower fuel prices have been more than offset by a drop in the loonie, which increases costs especially for hotel rooms priced in U.S. dollars.

Transat said it will seek to boost ancillary revenues by 22 per cent to $60 million in 2017, mainly by installing new software that will allow passengers to pay for advanced seat selection. However, there is no plan to introduce baggage fees to existing charges for on-board food and duty-free purchases and new cargo services.

The strategic plan was more “aggressive” than anticipated by analysts, said Benoit Poirier of Desjardins Capital Markets.

Eustache said Transat will also look at new markets in South America, Africa and Asia over the medium term.

While he’s not concerned about an eventual opening of Cuba to American travellers, Eustache said lower oil prices will reduce the number of south-bound Canadian travellers from Alberta and Newfoundland and Labrador.

Transat’s plan was unveiled Thursday as the company issued disappointing results and warned its key winter season will be down from last year.

Transat said it lost $64.3 million or $1.66 per share in the first quarter, compared with a loss of $25.6 million of 67 cents per share a year earlier.

Excluding one-time items such as fuel-hedging contracts, the adjusted net loss was $32.4 million or 84 cents per diluted share, compared with a loss of 67 cents per share forecast by analysts.

Revenue for the three months ended Jan. 31 fell 6.9 per cent to $788.6 million as the number of travellers declined 8.1 per cent and revenue from subleasing aircraft fell.