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Transat AT earnings battered by low loonie, Zika virus and strike threat

MONTREAL – Tour operator Transat AT expects to struggle with profitability over the rest of the winter season amid an ongoing hit from the low Canadian dollar, the impact of the Zika virus on travel plans and a recently resolved labour dispute.

The Montreal-based company estimates that over the last three winters, including this one, it has had to absorb about $150 million in net additional costs even after accounting for savings from lower fuel prices — or about $70 per tour package booked.

“That puts a lot of pressure on our winter profitability, that’s for sure,” chief financial officer Denis Petrin told reporters after Transat’s annual meeting.

On top of the increased costs, the operator of Air Transat says it has also been faced with a drop in demand from rising concern over the health threat posed by the Zika virus.

Meanwhile, the threat of a strike by pilots that was only resolved last month has already had an effect on second-quarter earnings.

On some days, demand was down by 30 per cent from a year earlier, it said.

Transat (TSX:TRZ) said it didn’t know the precise financial impact of each event, but that it lowered prices to stimulate demand and fill planes. The move reduced margins that will contribute to weaker year-over-year results in the second quarter as well.

In the first quarter, which included the Christmas holiday period, Transat reported a $61.2-million loss despite a 7.4 per cent increase in revenues to $846.9 million.

Transat missed analyst expectations as the adjusted loss was $37.3 million or $1 per share, worse than forecasts of a loss of 82 cents per share, according to analysts polled by Thomson Reuters.

Like the rest of the industry, the company said it has faced weakened demand for sun destinations from Alberta, Manitoba and Saskatchewan. However, as a small player in those markets, it was able to adjust better than others by deploying smaller aircraft.

Transat also expects flights to London’s Gatwick airport to become more competitive as rivals WestJet Airlines (TSX:WJA) and Air Canada Rouge (TSX:AC) launch service this summer using widebody aircraft.

“For sure London will be a much more difficult destination this year,” CEO Jean-Marc Eustache said.

He said the company hopes to improve financial performance by continuing to cut costs, boost ancillary revenues and expand its hotel offering in Mexico and the Caribbean.