Transat A.T. Inc. - Results for first quarter of 2023

Transat discloses strong quarterly results in a challenging environment

Record high customer deposits support the adjusted operating income margin target of 4% to 6% for the year 

For the first quarter:

• Revenues of $667.5 million
• Adjusted operating income¹ (adjusted EBITDA) of $3.3 million
• Operating loss (EBIT) of $38.1 million

Financial position:

• Unrestricted liquidity¹ of $567.7 million as at January 31, following strong cash flow generation of $145.2 million
• Customer deposits of $898.3 million, a new high, breaking the previous record in January 2020 by 11% 

MONTREAL, March 9, 2023 /CNW/ - 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, 2023.

"The momentum from the end of 2022 continues, confirming our financial scenarios," stated Annick Guérard, President and Chief Executive Officer of Transat. "Transat is on an upswing and is headed for a return to profitability. In the first quarter of 2023, revenues more than tripled compared with the corresponding quarter in 2022. Across all programs, combining European and South destinations, Transat deployed capacity comparable to that of 2019; load factors were slightly lower, but the shortfall was largely offset by higher prices. In addition, airline unit revenues, expressed in yield, increased by more than 20% compared with the first quarter of 2019. As a result, we recorded an adjusted operating income of $3.3 million for the period, an improvement of $39.7 million compared with the first quarter of 2022. These results are especially encouraging since the first quarter, which falls in the shoulder period, is usually the lowest of the year."

"Transat maintains the adjusted operating income margin target of 4% to 6% for the year. Resilient demand for travel is supporting prices and helps us deal with the pressure on operating costs. The context is therefore challenging but remains favourable to recovery in travel and Transat's relaunch," added Ms. Guérard.

During the first quarter, Transat deployed capacity equivalent to that of 2019 and recorded a satisfactory load factor of 84.5%. The Corporation acted prudently and rigorously to seize market opportunities, while minimizing operational risks. This balanced approach to capacity deployed served Transat and its travellers well. The Corporation successfully coped with numerous disruptions and delays caused by inclement weather and operational difficulties at several airports across North America between late December 2022 and early January 2023. Transat was thus able to record strong business volume, while maintaining its reputation for excellent customer service. This corporate culture is demonstrated every day by Transat employees, to whom the Corporation would like to express its appreciation.

First-quarter highlights

• For the first quarter, the Corporation generated $667.5 million in revenues, up $465.0 million from $202.4 million for the corresponding period of 2022. In 2022, the Corporation had to cancel nearly 30% of flights scheduled as a result of the sharp decline in demand and massive booking cancellations following the emergence of the Omicron variant.
• Transat recorded an operating loss of $38.1 million, an improvement of $35.7 million compared with the $73.8 million loss in 2022. Driven by sustained demand, this improvement was nonetheless dampened by a 46% surge in fuel prices.
• Adjusted operating income1 amounted to $3.3 million, an improvement of $39.7 million, compared with a loss of $36.4 million in 2022.
• Net loss amounted to $56.6 million, or $1.49 per share (diluted), compared with $114.3 million, or $3.03 per share (diluted), for the corresponding quarter of last year.
• Excluding non-operating items, Transat reported an adjusted net loss1 of $61.6 million ($1.62 per share) for the first quarter of 2023, compared with $95.3 million ($2.53 per share) in 2022.

Financial position

As at January 31, 2023, cash and cash equivalents amounted to $467.7 million, an increase of $124.6 million compared with $343.1 million at the same date in 2022. Cash and cash equivalents in trust or otherwise reserved resulting from travel package sales also increased to $555.1 million as at January 31, 2023, compared with $172.4 million at the same date in 2022.

Customer deposits for future travel stood at $898.3 million, up 11% from pre-pandemic levels (as at January 31, 2020), reflecting the recovery in demand and higher average selling prices.

In total, available financing amounted to a maximum of $963.3 million, of which $863.2 million was drawn down ($678.0 million as at January 31, 2022), for unrestricted liquidity¹ of $567.7 million.

Outlook

To date, for the second quarter of 2023, although load factors are 3 percentage points lower than in 2019, airline unit revenues, expressed in yield, are significantly higher and show a more than 25% increase. The combination of demand and higher prices will allow the Corporation to cope with higher costs. While it is too early to have a complete picture for the summer, the winter trends seem to be continuing into summer 2023.

For the full fiscal year 2023, the Corporation expects to deploy capacity equivalent to 90% of the 2019 level. This level is consistent with International Air Transport Association (IATA) projections for the Corporation's main markets.

Bearing in mind the indicators to date, the Corporation maintains the target of an adjusted operating income¹ margin of 4% to 6% for fiscal 2023. In making these forward-looking statements, the Corporation has relied on a number of assumptions, including moderate growth in Canada's GDP taking into account the risk of a short recession, an exchange rate of C$1.34 to US$1 and an average price per gallon of jet fuel of C$4.50. 

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 Canadian dollars)	First quarter
	2023	2022
Revenues	667,457	202,438
Operating loss	(38,103)	(73,841)
Special items	2,900	—
Depreciation and amortization	41,108	37,472
Premiums related to derivatives that matured during the period	(2,574)	—
Adjusted operating income (loss)^1	3,331	(36,369)
Net loss	(56,610)	(114,345)
Special items	2,900	—
Change in fair value of derivatives	9,921	528
Revaluation of liability related to warrants	10,139	456
Gain on asset disposals	(2,511)	(3,952)
Foreign exchange (gain) loss	(22,829)	21,996
Premiums related to derivatives that matured during the period	(2,574)	—
Adjusted net loss^1	(61,564)	(95,317)
Diluted loss per share	(1.49)	(3.03)
Special items	0.08	—
Change in fair value of derivatives	0.26	0.01
Revaluation of liability related to warrants	0.27	0.01
Gain on asset disposals	(0.07)	(0.10)
Foreign exchange (gain) loss	(0.60)	0.58
Premiums related to derivatives that matured during the period	(0.07)	—
Adjusted net loss per share^1	(1.62)	(2.53)

			As at January 31, 2023	As at October 31, 2022
Cash and cash equivalents			467,712	322,535
Undrawn funds from credit facilities			100,000	100,000
Unrestricted liquidity^1			567,712	422,535

About Transat

Founded in Montreal 35 years ago, Transat has achieved worldwide recognition as a provider of holiday travel particularly as an airline under the Air Transat brand. Voted World's Best Leisure Airline in North America by passengers at the 2022 Skytrax World Airline Awards, it flies to international, U.S. and Canadian destinations. By renewing its fleet with the most energy-efficient aircraft in their category, it is committed to a healthier environment, knowing that this is essential to its operations and the destinations it serves. Transat has been Travelife-certified since 2018. (TSX: TRZ) www.transat.com

(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 news 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) or adjusted EBITDA: Operating income (loss) before depreciation, amortization and asset impairment expense, restructuring charge and other significant unusual items, and including premiums related to derivatives that 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 pre-tax income (loss) or adjusted EBT: Income (loss) before income tax expense before change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain (loss) on asset disposals, restructuring charge, asset impairment, foreign exchange gain (loss) and other significant unusual items, and including premiums related to derivatives that matured during the period. 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): Net income (loss) before net income (loss) from discontinued operations, change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain (loss) on asset disposals, restructuring charge, asset impairment, foreign exchange gain (loss), reduction in the carrying amount of deferred tax assets and other significant unusual items, and including premiums related to 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 2023 conference call: Thursday, March 9, 11:30 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 22025961, until April 8, 2023.

The second-quarter results will be announced on June 8, 2023.

Caution regarding forward-looking statements

This news 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 resumption of operations 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, 2023, 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.

Despite the resumption of operations and the recovery in demand, concerns related to the pandemic and its economic impacts, combined with the uncertainty of a possible economic downturn, ongoing inflation in many countries, including Canada, and the military conflict between Russia and Ukraine continued to create significant demand uncertainty, and the effects will still be partially present in fiscal 2023. While the situation considerably improved since the second quarter of 2022, the Corporation cannot yet predict with certainty all the impacts of this situation 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. Although the Corporation is currently experiencing a significant resumption of operations, it does not expect to reach the pre-pandemic level before 2024.

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 2022 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 news 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.
  
• The outlook whereby, for the full fiscal year 2023, the Corporation expects to deploy capacity equivalent to 90% of the 2019 level.
  
• The outlook whereby, the combination of demand and higher prices will allow the Corporation to cope with higher costs.
  
• The outlook whereby, the Corporation maintains the target of an adjusted operating income¹ margin of 4% to 6% for fiscal 2023.

In making these statements, the Corporation assumes, among other things, that no travel or border restrictions will be imposed by government authorities, that the standards and measures for the health and safety of personnel and travellers imposed by government and airport authorities will be consistent with those currently in effect, that travellers will continue to travel despite the health measures and other constraints imposed as a result of the pandemic, that workers will continue to be available to the Corporation, its suppliers and the companies providing passenger services at the airports, 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 and that fuel prices, exchange rates, selling prices, and hotel and other costs remain stable. 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 news release is issued, and represent the Corporation's expectations as of that date. For additional information with respect to these and other factors, see the MD&A for the quarter ended January 31, 2023 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.

Media Site: transat.com/en-CA/corporate/media

SOURCE Transat A.T. Inc.

Media: Andréan Gagné, Senior Director, Public Affairs and Communications, 514-987-1616, ext. 104071; Financial analysts: Patrick Bui, Chief Financial Officer, 514 987-1616 ext. 4567