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

Transat builds on its momentum and enters a summer of robust activity

Adjusted operating income for the second quarter of 2023 nearly 40% higher than in the second quarter of 2019
Transat raises its adjusted operating income margin target from 4-6% to 5.5-7% for the fiscal year

For the second quarter:

• Revenues of $870.1 million
• Adjusted operating income¹ (adjusted EBITDA) of $56.1 million
• Operating income (EBIT) of $18.7 million

Financial position:

• Unrestricted liquidity¹ of $723.6 million as at April 30, following strong cash flow generation of $155.9 million
• Customer deposits for future travel of $867.1 million, a 38% increase compared with April 30, 2019
• Maturities for secured loans totalling $198.0 million extended from April 2024 to April 2025

MONTREAL, June 8, 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 second quarter ended April 30, 2023.

"For the second quarter of 2023, Transat reported a solid performance, with an adjusted operating income of $56.1 million, nearly 40% higher than in the same quarter of 2019. At mid-year, and based on current booking trends, we are raising the target for the adjusted operating income margin from the initially set range of 4% to 6% to a target of 5.5% to 7% for the fiscal year."

"Several factors contributed to the Corporation's favourable results. Firstly, the demand for leisure travel, which is Transat's primary niche, is holding steady. This high volume of activity is driving prices up, resulting in 15% increases at the beginning of the quarter, and almost 24% at the end of the quarter, compared with the same period in 2019. In addition, Transat actively continued its fleet optimization plan, deploying in winter 2023 a capacity comparable to winter 2019 with 20 fewer aircraft in service. Better price management, thanks to improved practices and new tools, has also helped to maximize revenues and seize market opportunities. Transat also relied on continuous improvement in its operational efficiency throughout the quarter."

"With more than 60% of our capacity sold, the stage is set for a dynamic summer. Transat will deploy for the summer a capacity representing 89% of its 2019 level, with Europe comprising 80% of the activity, leveraging the most profitable routes for Transat," stated Annick Guérard, President and Chief Executive Officer of Transat.

Second-quarter highlights

• For the second quarter, the Corporation generated $870.1 million in revenues, up $512.0 million from $358.2 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 operating income of $18.7 million, an improvement of $106.3 million compared with the $87.5 million loss in 2022.
• Adjusted operating income¹ amounted to $56.1 million, an improvement of $107.2 million, compared with an adjusted operating loss¹ of $51.0 million in 2022.
• Net loss amounted to $29.2 million ($0.76 per share), compared with $98.3 million ($2.60 per share) for the corresponding quarter of last year.
• Excluding non-operating items, Transat reported an adjusted net loss¹ of $8.0 million ($0.21 per share) for the second quarter of 2023, compared with $111.6 million ($2.95 per share) in 2022.

Financial position

As at April 30, 2023, cash and cash equivalents amounted to $623.6 million, an increase of $112.4 million compared with $511.2 million at the same date in 2022. Cash and cash equivalents in trust or otherwise reserved resulting from travel package sales also increased; the balance stood at $262.2 million as at April 30, 2023, compared with $191.9 million at the same date in 2022.

Customer deposits for future travel stood at $867.1 million, up 38% from pre-pandemic levels as at April 30, 2019, reflecting the rebound in demand and higher average selling prices.

During the second quarter, Transat renegotiated secured loans totalling $198.0 million, extending the maturity dates from April 2024 to April 2025. "These amendments provide us greater flexibility in repaying debt and attest to our financial partners' trust in our recovery plan," stated Patrick Bui, Chief Financial Officer of Transat.

In total, available financing amounted to a maximum of $963.3 million, of which $863.2 million was drawn down ($858.6 million as at April 30, 2022), for unrestricted liquidity¹ of $723.6 million.

Outlook

To date, although load factors for this summer are 2.6 percentage points lower than in 2019, airline unit revenues, expressed in yield, are 29% higher than four years ago. The combination of strong demand and upward pricing will allow the Corporation to cope with a cost environment that remains generally higher and volatile.

In light of the mid-year indicators, the Corporation is raising the target for adjusted operating income¹ margin from the initially set range of 4% to 6% to a target of 5.5% to 7% for fiscal 2023. In making these forward-looking statements, the Corporation adjusted its assumptions for the full year, including moderate growth in Canada's GDP, an exchange rate of C$1.35 to US$1 and an average price per gallon of jet fuel of C$4.25. 

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)	Second quarter		First six-month period
	2023	2022	2023	2022
Revenues	870,111	358,157	1,537,568	560,595
Operating income (loss)	18,740	(87,513)	(19,363)	(161,354)
Restructuring costs (reversal)	(557)	—	2,343	—
Depreciation and amortization	42,763	36,499	83,871	73,971
Premiums related to derivatives that matured during      the period	(4,802)	—	(7,376)	—
Adjusted operating income (loss)^1	56,144	(51,014)	59,475	(87,383)
Net loss	(29,180)	(98,276)	(85,790)	(212,621)
Restructuring costs (reversal)	(557)	—	2,343	—
Change in fair value of derivatives	13,949	1,192	23,870	1,720
Revaluation of liability related to warrants	(3,234)	353	6,905	809
Gain on long-term debt modification	—	(22,191)	—	(22,191)
Gain on asset disposals	—	(66)	(2,511)	(4,018)
Foreign exchange (gain) loss	15,867	7,425	(6,962)	29,421
Premiums related to derivatives that matured during      the period	(4,802)	—	(7,376)	—
Adjusted net loss^1	(7,957)	(111,563)	(69,521)	(206,880)
Diluted loss per share	(0.76)	(2.60)	(2.25)	(5.63)
Restructuring costs (reversal)	(0.01)	—	0.06	—
Change in fair value of derivatives	0.36	0.03	0.63	0.05
Revaluation of liability related to warrants	(0.08)	0.01	0.18	0.02
Gain on long-term debt modification	—	(0.59)	—	(0.59)
Gain on asset disposals	—	—	(0.07)	(0.11)
Foreign exchange (gain) loss	0.41	0.20	(0.18)	0.78
Premiums related to derivatives that matured during      the period	(0.13)	—	(0.19)	—
Adjusted net loss per share^1	(0.21)	(2.95)	(1.82)	(5.48)

			As at April 30, 2023	As at October 31, 2022
Cash and cash equivalents			623,562	322,535
Undrawn funds from credit facilities			100,000	100,000
Unrestricted liquidity^1			723,562	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 costs 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 costs, 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

Second-quarter 2023 conference call: Thursday, June 8, 10:00 a.m. Dial 1 800 926-9795.. Name of conference: Transat. Webcast: follow this link. The archived call will be available at 1 800 558-5253, access code 22025962, until July 7, 2023.

The third-quarter results will be announced on September 7, 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 April 30, 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, the economic impacts of the pandemic, 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 demand uncertainty. 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. Since the second quarter of 2020, 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, demand uncertainty will have significant negative impacts on its 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, demand uncertainty will have significant negative impacts on its 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, the combination of strong demand and upward pricing will allow the Corporation to cope with a cost environment that remains generally higher and volatile.
  
  
• The outlook whereby, the Corporation is raising the target for adjusted operating income¹ margin from the initially set range of 4% to 6% to a target of 5.5% to 7% 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 April 30, 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