Transat A.T. Inc. - Results for first quarter of 2022

Recovery plan continues after interruption caused by Omicron
Significant improvement in revenues and results compared with 2021

For the first quarter:

• Revenues of $202.4 million
• Adjusted operating loss¹ of $36.4 million (operating loss of $73.8 million)
• Adjusted net loss¹ of $95.3 million (net loss of $114.3 million)

Financial position and financing:

• Unrestricted liquity¹ of $485.1 million as at January 31, consisting of cash and cash equivalents of $343.1 million and borrowing capacity of $142.0 million
• The Corporation obtained an initial $43.3 million in additional financing and negotiated 20-month favorable extensions on certain key terms of the LEEFF unsecured financing agreement

MONTRÉAL, March 10, 2022 /CNW Telbec/ - Transat A.T. inc., a holiday travel reference worldwide, particularly as an air carrier under the Air Transat brand, announces its results for the first quarter ended January 31, 2022.

"While we were in the midst of a strong recovery, with November and December results matching our targets, the emergence of the Omicron variant brought our sales to a temporary halt between mid-December and early February. Subsequently, and particularly after the easing of restrictive measures at the borders, bookings picked up again, for both winter and summer, which augurs well for the coming months," stated Annick Guérard, President and Chief Executive Officer of Transat.

"We, therefore intend to continue with our initial strategic plan and stay the course for the summer. Our recovery plan has allowed us to recall approximately 500 employees since the start of November and we are delighted to see that many of our customers in Canada and Europe are eager to travel after two years of the pandemic. Our code-sharing agreement with Porter Airlines announced on Tuesday also demonstrates the progress made towards our longer term strategic goals.

"The deferral of certain terms of our financing under the Large Employer Emergency Financing Facility ("LEEFF"), as well as the securing an additional $43.3 million for refunding travellers, will facilitate our recovery following the resurgence of the pandemic. In the short term, our priority is to protect our cash flows and access the liquidity needed to get through this period of uncertainty. Although we are in recovery, the impacts of COVID-19 are still being felt and the geopolitical situation is constantly changing. As we will remain in a cash burn situation for the coming months, we are also in discussions with the federal government for additional funding," concluded Guérard.

First quarter highlights

Compared with 2021, revenues for the quarter ended January 31, 2022 were up $160.5 million (382.9%). This increase resulted mainly from a rise in the number of travellers combined with a slight increase in average selling prices. Compared with the same quarter of fiscal 2019, revenues for the current quarter were down 68.7%. Since mid-March of 2020, restrictions on international travel and government-imposed quarantine measures have made travel sales very difficult. Revenue growth in the quarter was dampened by the sharp decline in demand and massive booking cancellations following the emergence of the Omicron variant during the quarter and the new restrictive measures put in place by the federal government on December 15, 2021. As a result, the Corporation cancelled nearly 30% of flights scheduled for January.  

Operations resulted in an operating loss of $73.8 million, compared with $98.0 million in 2021, an improvement of $24.2 million. The improvement in operating results was attributable to the gradual and partial resumption of airline operations. This improvement in operating results was however reined in by the cancellation of nearly 30% of flights scheduled for January following the emergence of the Omicron variant, as discussed previously. Transat reported an adjusted operating loss¹ of $36.4 million compared with $53.6 million in 2021, an improvement of $17.3 million.

Net loss attributable to shareholders amounted to $114.3 million or $3.03 per share (diluted) compared with $60.5 million or $1.60 per share (diluted) for the corresponding quarter of last year. The net loss attributable to shareholders in 2022 was marked by a $22.0 million foreign exchange loss, partially offset by a $4.0 million gain on disposal of assets related to the termination of an aircraft lease. The net loss attributable to shareholders in 2021 was mitigated by a $32.9 million foreign exchange gain and a $17.4 million gain on disposal of assets related to the termination of three aircraft leases. Foreign exchange gains and losses resulted mainly from the exchange effect on lease liabilities related to aircraft, following the fluctuations of the dollar against the U.S. dollar. Excluding non-operating items, Transat reported an adjusted net loss¹ of $95.3 million ($2.53 per share) for the first quarter of 2022, compared with $109.0 million ($2.89 per share) in 2021.

Financial position

As at January 31, 2022, cash and cash equivalents amounted to $343.1 million, compared with $302.8 million at the same date in 2021. In total, the available credit amounted to a maximum of $820.0 million, of which $678.0 million was drawn down, for unrestricted liquidity¹ of $485.1 million. Note that subsequent to January 31, the Corporation drew an additional $112.0 million, bringing the amount drawn to $790.0 million.

As previously mentioned, the Corporation has also reached an agreement with the government for an additional $43.3 million under the unsecured credit facility related to travel credits. Considering the unrestricted liquidity¹ of $485.1 million at January 31, 2022, the pro forma unrestricted liquidity¹ position at that date was $528.4 million.

Outlook

The Corporation continues to implement a series of operational, commercial and financial measures, including cost reduction, to preserve its cash flow. The Corporation continues to monitor the situation on a daily basis in order to adjust these measures as the situation evolves.

Following the recent announcements regarding the easing of health measures and travel restrictions by various governments in Canada and other countries, the current situation is showing encouraging signs in terms of bookings. However, it remains impossible at this time to predict the impact of the COVID-19 pandemic on future bookings, and on financial results. Consequently, the Corporation is not currently providing an outlook for the second quarter or for summer 2022.

Second quarter 2022

Across all our markets, the capacity for the second quarter of the fiscal year represents 48.0% of the overall capacity of 2019. For the sun destinations program, the Corporation's main market for the winter season, the capacity in 2022 represents 44.0% of the 2019 levels. In the transatlantic market, where it is the low season, the Corporation's capacity represents 59% of the 2019 levels while the transborder market represents 94%.

Summer 2022

Across all our markets, the planned capacity for summer 2022 is 91% of the 2019 overall capacity. For the transatlantic program, the Corporation's main market for the summer season, the planned capacity in 2022 is 78% of the 2019 levels. In the sun destinations program, where it is the low season, the Corporation's planned capacity represents 96% of the 2019 levels. Moreover, the Corporation plans to increase its presence in the transborder market by quadrupling its capacity compared with 2019 by offering, among other things, new flights from Montreal to Los Angeles and San Francisco. Lastly, the Corporation also plans to increase its capacity by 9.0% in the domestic market compared with 2019.

Impact of Omicron and liquidity protection measures

In addition to its impact on our revenues and operating results, the emergence of the Omicron variant as well as new restrictive measures introduced by Canada and other countries had a significant negative effect on cash flow.

Accordingly, the Corporation continued and strengthened its cost reduction and liquidity protection measures put in place since the beginning of the pandemic, including negotiations with suppliers and lenders and deferral of expenses.

In addition, in order to continue the recovery of operations and preserve liquidity, the Corporation renegotiated certain terms of its financing agreements with the Canada Enterprise Emergency Funding Corporation under the Large Employer Emergency Financing Facility ("LEEFF"). 

The amendments are as follows:

Unsecured credit facility related to travel credits

• An additional amount of $43.3 million, corresponding to a change in the cap on reimbursements made by the Company during previous waves
• The maturity date of April 29, 2028 and interest rate of 1.22% remained unchanged

Unsecured debt – LEEFF

• Deferring the interest rate increase. The interest rate will increase from 5% to 8% on December 31, 2023, and by 2% each year thereafter. The interest rate was scheduled to increase on April 29, 2022 and also increase each year thereafter.
• Interest on the unsecured debt – LEEFF may be capitalized until December 31, 2024 (previously until April 29, 2023).
• 50% of the vested warrants would be forfeited if the loan were to be repaid in full before December 31, 2023 (previously before April 29, 2022).
• Loan maturity remains at April 29, 2026.

In total, the financing available under LEEFF will amount to a maximum of $743.3 million. There are ongoing discussions with the federal government for additional funding.

Additional Information

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

Highlights and Non-IFRS financial measures
(In thousands of C$)
	First quarter
	2022	2021
Revenues	202,438	41,920
Operating loss	(73,841)	(98,048)
Special items	—	6,926
Depreciation and amortization	37,472	37,490
Adjusted operating loss^1	(36,369)	(53,632)
Net loss attributable to shareholders	(114,345)	(60,534)
Special items	—	6,926
Fuel-related and other derivatives	528	(5,196)
Revaluation of liability related to warrants	456	—
Loss (gain) on asset disposals	(3,952)	(17,372)
Foreign exchange loss (gain)	21,996	(32,873)
Adjusted net loss^1	(95,317)	(109,049)
Diluted loss per share	(3.03)	(1.60)
Special items	—	0.18
Fuel-related and other derivatives	0.01	(0.14)
Revaluation of liability related to warrants	0.01	—
Loss (gain) on asset disposals	(0.10)	(0.87)
Foreign exchange loss (gain)	0.58	(0.46)
Adjusted net loss per share^1	(2.53)	(2.89)
	As at January 31, 2022	As at October 31, 2021
Cash and cash equivalents	343,131	433,195
Undrawn funds from credit facilities	142,000	170,000
Unrestricted liquidity^1	485,131	603,195

As the Corporation has ceased to recognize deferred tax assets, the presentation of the adjusted loss before tax expense has been suspended, this result being similar to the adjusted net loss, which continues to be presented.

About Transat

Founded in Montreal 35 years ago, Transat has grown to become a holiday travel reference worldwide, particularly as an air carrier under the Air Transat brand. Voted World's Best Leisure Airline by passengers at the Skytrax World Airline Awards, it flies to international and Canadian destinations, striving to serve its customers with enthusiasm and friendliness at every stage of their trip or stay, and emphasizing safety throughout. Transat has been Travelife-certified since 2018, renewing its fleet with the greenest aircraft in their category as part of a commitment to a healthier environment, knowing that this is essential to the integrity of its operations and the magnificent destinations it serves.(TSX: TRZ).

(1) Non-IFRS financial measures

Transat prepares its financial statements in accordance with International Financial Reporting Standards ["IFRS"]. We will occasionally refer to non-IFRS financial measures in the press release. These non-IFRS financial measures do not have any meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They are intended to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with IFRS. All dollar figures are in Canadian dollars unless otherwise indicated.

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

Adjusted operating income (loss): Operating income (loss) before depreciation, amortization and asset impairment expense, restructuring charge, lump-sum payments related to collective agreements and other significant unusual items, and including premiums for fuel-related derivatives and other derivatives matured during the period. The Corporation uses this measure to assess the operational performance of its activities before the aforementioned items to ensure better comparability of financial results.

Adjusted net income (loss): Net income (loss) attributable to shareholders before net income (loss) from discontinued operations, change in fair value of fuel-related derivatives and other derivatives, revaluation of liability related to warrants, gain (loss) on business disposals, gain (loss) on asset disposals, restructuring charge, lump-sum payments related to collective agreements, asset impairment, foreign exchange gain (loss), reduction in the carrying amount of deferred tax assets and other significant unusual items, and including premiums for fuel-related derivatives and other derivatives that matured during the period, net of related taxes. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results. Adjusted net income (loss) is also used in calculating the variable compensation of employees and senior executives.

Adjusted net income (loss) per share: Adjusted net income (loss) divided by the adjusted weighted average number of outstanding shares used in computing diluted earnings (loss) per share.

Unrestricted liquidity: The sum of cash and cash equivalents and available undrawn funds from credit facilities. The Corporation uses this measure to assess the total potential cash available in the short term.

Conference call

First-quarter 2022 conference call: Thursday, March 10, 10:00 a.m. Dial 1 800 926-9795 or 1 212 231-2919. Name of conference: Transat. Webcast: follow this link. The archived call will be available at 416 626-4100 or 1 800 558-5253, access code 22015314, until April 9, 2022.

The second quarter results will be announced on June 9, 2022.

Caution regarding forward-looking statements

This press release contains certain forward-looking statements with respect to the Corporation, including those regarding its results, its financial position, the impacts of the coronavirus ["COVID-19"] pandemic, its outlook for the future and planned measures, including in particular the gradual resumption of certain flights and actions to improve its cash flows. These forward-looking statements are identified by the use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "will," "would,", the negative of these terms and similar terminology, including references to assumptions. All such statements are made pursuant to applicable Canadian securities legislation. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions. Forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements.

As at January 31, 2022, a material uncertainty exists that may cast significant doubt on the Corporation's ability to continue as a going concern. The MD&A's Section 7. Financial position, liquidity and capital resources and Note 2 to the interim condensed consolidated financial statements contain more detail on this issue.

The global air transportation and tourism industry has faced a collapse in traffic and demand. Travel restrictions, the imposition of quarantine measures and vaccination and testing requirements both in Canada and other countries, as well as concerns related to the pandemic and its economic impacts are creating some demand uncertainty, at least for fiscal 2022. For the 2022 winter season, the Corporation rolled out a reduced winter program that had to be adjusted following the emergence of the Omicron variant and new restrictive measures implemented by Canada and other countries. The Corporation cannot predict all the impacts of COVID-19 on its operations and results, the pace at which the situation will improve or precisely when conditions will become normal again. Since the beginning of the pandemic, the Corporation implemented a series of operational, commercial and financial measures, including new financing and cost reduction measures, aimed at preserving its cash. The Corporation is monitoring the situation daily to adjust these measures as it evolves. However, until the Corporation is able to resume operations at a sufficient level, the COVID-19 pandemic will have significant negative impacts on its revenues, cash flows from operations and operating results. While progress on vaccination and the lifting of certain restrictions have made it possible to resume operations at a certain level during 2022, the Corporation does not expect such level to reach the pre-pandemic level before 2023.

The forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, economic conditions, changes in demand due to the seasonal nature of the business, extreme weather conditions, climatic or geological disasters, war, political instability, real or perceived terrorism, outbreaks of epidemics or disease, consumer preferences and consumer habits, consumers' perceptions of the safety of destination services and aviation safety, demographic trends, disruptions to the air traffic control system, the cost of protective, safety and environmental measures, competition, the Corporation's ability to maintain and grow its reputation and brand, the availability of funding in the future, fluctuations in fuel prices and exchange rates and interest rates, the Corporation's dependence on key suppliers, the availability and fluctuation of costs related to our aircraft, information technology and telecommunications, changes in legislation, unfavourable regulatory developments or procedures, pending litigation and third party lawsuits, the ability to reduce operating costs, the Corporation's ability to attract and retain skilled resources, labour relations, collective bargaining and labour disputes, pension issues, maintaining insurance coverage at favourable levels and conditions and at an acceptable cost, and other risks detailed in the Risks and Uncertainties section of the MD&A included in our 2021 Annual Report.

The reader is cautioned that the foregoing list of factors is not exhaustive of the factors that may affect any of the Corporation's forward-looking statements. The reader is also cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements.

The forward-looking statements in this press release are based on a number of assumptions relating to economic and market conditions as well as the Corporation's operations, financial position and transactions. Examples of such forward-looking statements include, but are not limited to, statements concerning:

• The outlook whereby until the Corporation is able to resume operations at a sufficient level, the COVID-19 pandemic will have significant negative impacts on its revenues, cash flows from operations and operating results.
  
  
• The outlook whereby, subject to going concern uncertainty as discussed in Section 7. Financial position, liquidity and capital resources of the MD&A and Note 2 to the interim condensed consolidated financial statements, we believe that the Corporation will be able to meet its obligations with cash on hand, cash flows from operations and drawdowns under existing credit facilities

.In making these statements, the Corporation has assumed, among other things, that travel and border restrictions imposed by government authorities will be relaxed to allow for a resumption of operations of the type and scale expected, that the standards and measures imposed by government and airport authorities to ensure the health and safety of personnel and travellers will be consistent with those announced or currently anticipated, that travellers will continue to travel despite the new health measures and other constraints imposed as a result of the pandemic, that credit facilities and other terms of credit extended by its business partners will continue to be made available as in the past, that management will continue to manage changes in cash flows to fund working capital requirements for the full fiscal year. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by the forward-looking statements contained in this press release.

The Corporation considers that the assumptions on which these forward-looking statements are based are reasonable.

These statements reflect current expectations regarding future events and operating performance, speak only as of the date this press release is issued, and represent the Corporation's expectations as of that date. For additional information with respect to these and other factors, see MD&A for the quarter ended January 31, 2022 filed with the Canadian securities commissions and available on SEDAR at www.sedar.com. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities legislation.

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SOURCE Transat A.T. Inc.

Media: Christophe Hennebelle, Vice-President, Human Resources and Corporate Affairs,514-987-1660, ext. 4584; Financial analysts: Patrick Bui, Chief Financial Officer, , 514 987-1660