Transat A.T. Inc. - Results for first quarter of 2018

Improved results and progress on strategic plan

• Revenues of $725.8 million ($689.3 million for the first quarter of 2017).
• Operating loss of $45.8 million ($50.7 million).
• Adjusted operating loss¹ of $31.0 million ($37.1 million).
• Net loss attributable to shareholders of $6.6 million ($32.1 million).
• Adjusted net loss³ of $33.9 million ($36.0 million).
• Sale of the subsidiary Jonview Canada Inc. for $48.4 million on November 30, 2017.

MONTREAL, March 15, 2018 /CNW Telbec/ - Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, announces its results for the first quarter ended January 31, 2018.

"During this quarter, we continued the repositioning started last year by announcing the disposal of Jonview for $48.4 million and the appointment of Jordi Solé as President of our new hotels division. The disposals made during the past 18 months generated $327 million in total for our hotel investments. We're also continuing our work on revenue management and the fleet," stated Jean-Marc Eustache, President and Chief Executive Officer of Transat.

"Our results improved by $9.1 million from last year, on a comparable basis, and if the trends continue, we expect to maintain these gains at the end of winter."

First-quarter highlights

The Corporation posted revenues of $725.8 million, compared with $689.3 million in 2017, an increase of $36.5 million (5.3%). This improvement was driven by growth in the number of travellers of 6.2% in the sun destination market, our main market for the period, and of 20.3% in the transatlantic market. In addition, average selling prices rose slightly across all our markets.

Our operations resulted in an adjusted operating loss¹ of $31.0 million, compared with $37.1 million in 2017. The $6.1 million improvement resulted primarily from an increase in the number of travellers combined with higher average selling prices and the favourable foreign exchange effect (net of the impact of higher fuel prices), which led to a $13.3 million decrease in operating expenses for the quarter. However, this improvement in operating results was mitigated by $9.0 million in maintenance costs related to one-time events.

On a comparable basis, excluding the businesses sold recently (Ocean Hotels and Jonview), the adjusted operating loss¹ decreased by $9.1 million compared with the previous year.

Net loss attributable to shareholders was $6.6 million ($0.18 per share, basic and diluted) for the first quarter of 2018, compared with $32.1 million ($0.87 per share, basic and diluted) in 2017. Before non-operating items, Transat reported an adjusted net loss³ of $33.9 million ($0.91 per share) for the first quarter of 2018, compared with $36.0 million ($0.98 per share) in 2017.

Sale of Jonview Canada Inc.

On November 30, 2017, the Corporation completed the sale of its subsidiary Jonview, which has an incoming tour operator business in Canada, to Japanese multinational H.I.S. Co. Ltd., which specializes in travel distribution. The expected selling price amounts to $48.4 million, of which $47.3 million was received in cash on that date. The Corporation recognized a gain on business disposal of $31.2 million, net of transaction costs of $0.5 million and of $3.7 million due to the Fonds de Solidarité des Travailleurs du Québec [the "Fonds"], as an additional consideration to the repurchase price of the 19.93% interest held by the Fonds in December 2016.

Hotel Division

On February 1, 2018, the Corporation announced the appointment of Jordi Solé as President of its hotel division, effective February 20, 2018. Drawing on his experience acquired with major international chains such as Barcelo, Iberostar and more recently, Blue Diamond, Mr. Solé immediately began to look for available land and hotels to allow Transat to achieve its goal of operating approximately 5,000 owned or managed rooms within seven years.

Financial position

As at January 31, 2018, cash and cash equivalents amounted to $749.3 million, compared with $454,8 million on the same date in 2017. The increase of $294.5 million was primarily due to the proceeds from the disposal of Ocean Hotels and Jonview as well as to positive cash flows generated by operations. The working capital ratio was 1.36, compared with 1.15 as at January 31, 2017. Deposits from customers for future travel amounted to $636.8 million, compared with $597.7 million as at January 31, 2017.

Off-balance-sheet agreements, excluding contracts with service providers, stood at $1,770.2 million as at January 31, 2018, compared with $1,745.2 million as at October 31, 2017. The $24.9 million increase resulted from the agreements entered into during the quarter to lease two Airbus A321ceos and two Airbus A330s, which will be commissioned during the year. The increase was partially offset by the strengthening of the dollar against the U.S. dollar and the repayments made.

Second quarter outlook

In the sun destination market outbound from Canada, the Corporation's main market during the winter, Transat's capacity is up 5.5% compared with last year. To date, 77% of that capacity has been sold, bookings are ahead by 4% and the load factors are down 1.4%. Due to the strengthening of the Canadian dollar, offset by rising fuel costs, operating expenses are currently down 3.3%. Unit margins are up 0.8% compared with the same date last year.

The hurricanes that occurred in September 2017 significantly impacted results in the sun destination market outbound from Canada. The results from Cuba destinations, which represent 25% of the Corporation's sun destination capacity in the second quarter, were negatively impacted by these hurricanes. Besides, it should also be noted that bookings taken until December 2017 presented higher margins than last year's. This is less the case since January.

In the transatlantic market, where it is low season, Transat's capacity is up 19% compared to that offered last winter. To date, 68% of that capacity has been sold, bookings are ahead by 15% and the load factors are down 4.9%. Unit margins are down 1.2% from the same date last year.

If these trends continue, Transat expects second quarter results to be comparable to 2017 performance.

Summer outlook

In the transatlantic market, the Corporation's main market during the summer, Transat's capacity is up 17% compared with 2017. To date, 30% of seats have been sold, load factors are similar and selling prices are up 1.7% compared with the same date last year. Higher fuel costs, net of fluctuations in the Canadian dollar against the U.S. dollar, the euro and the pound, have currently led to a 3.3% increase in operating costs. Unit margins are similar to those recorded at the same date last year. 

Apart from these initial trends, it is still too early to draw any conclusions for summer 2018.

Additional information

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

Highlights and impact of non-operating items on results
(In thousands of C$)
		First quarter
		2018	2017
Revenues		725,782	689,332
Operating income (loss)		(45,795)	(50,671)
	Depreciation and amortization	14,769	14,206
	Premiums related to derivatives matured during the period	—	(614)
Adjusted operating income (loss)^1		(31,026)	(37,079)
Income (loss) before taxes		(17,469)	(45,111)
	Fuel-related derivatives and other derivatives	4,219	(4,804)
	Gain on business disposals	(30,696)	—
	Premiums related to derivatives matured during the period	—	(614)
Adjusted pre-tax income (loss)^2		(43,946)	(50,529)
Net income (loss) attributable to shareholders		(6,588)	(32,073)
	Fuel-related derivatives and other derivatives	3,088	(3,516)
	Gain on business disposals	(30,368)	—
	Premiums related to derivatives matured during the period	—	(450)
Adjusted net income (loss)^3		(33,868)	(36,039)
Diluted income (loss) per share		(0.18)	(0.87)
	Fuel-related derivatives and other derivatives	0.08	(0.10)
	Gain on business disposals	(0.82)	—
	Premiums related to derivatives matured during the period	—	(0.01)
Adjusted net income (loss) per share^3		(0.91)	(0.98)

Hedging – The Corporation records in the statement of income (loss) any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel price risk, as well any gains or losses resulting from mark-to-market adjustments of certain hedging instruments used to mitigate exchange rate exposure. In the first quarter of 2018, this resulted in a $4.2 million non-cash loss ($3.1 million after income taxes), compared with a $4.8 million gain ($3.5 million after income taxes) in 2017.

The Corporation uses hedging instruments to mitigate exchange rate exposure arising from its expenses and/or revenues in foreign currencies. Accordingly, under applicable accounting standards, any fluctuations resulting from the effective portion of mark-to-market adjustments of these instruments are recorded in the consolidated statement of financial position and consolidated statement of comprehensive income (loss) rather than in the consolidated statement of income (loss). For the first quarter of 2018, Transat recorded a loss of $17.1 million ($12.6 million after income taxes) on these foreign currency hedging instruments, compared with $5.7 million ($4.2 million after income taxes) in 2017.

About Transat
Transat A.T. Inc. is a leading integrated international tourism company specializing in holiday travel. Under the Transat and Air Transat banners, it offers vacation packages, hotel stays and air travel to some 60 destinations in 26 countries in the Americas, Europe and the Middle East. Based in Montréal, the company has 5,000 employees. Transat is firmly committed to sustainable tourism development, as reflected in its multiple corporate responsibility initiatives over the past 10 years, and was awarded Travelife Partner status in 2016 (TSX:TRZ).

NOTES

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

1. Adjusted operating income (adjusted operating loss): Operating income (loss) before depreciation and amortization expense, restructuring charge, lump-sum payments related to collective agreements and other significant unusual items, 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.
   
2. Adjusted pre-tax income (loss): Income (loss) before income tax expense before change in fair value of fuel-related derivatives and other derivatives, gain (loss) on business disposal, restructuring charge, lump-sum payments related to collective agreements, asset impairment 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 financial performance of its activities before the aforementioned items to ensure better comparability of financial results.
   
3. Adjusted net income (adjusted net 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, gain (loss) on business disposal, restructuring charge, lump-sum payments related to collective agreements, asset impairment and other significant unusual items, and including premiums for fuel-related derivatives and other derivatives 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.

Conference call

First quarter 2018 conference call: Thursday, March 15, 2:30 p.m. Dial 1-800-926-9801. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available until April 14, 2018 at 1-800-558-5253, access code 21881419.

Non-IFRS 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 amounts are in Canadian dollars unless otherwise indicated.

Caution regarding forward-looking statements

This news release contains certain forward-looking statements regarding the Corporation's expectation that travel reservations will follow the trends. In making these statements, the Corporation has assumed that the trends in reservations and selling prices will continue, and that fuel prices, other costs and the value of the Canadian dollar against foreign currencies will 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 news release. Results indicated in 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 from time to time in the Corporation's continuous disclosure documents.

These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements. The Corporation considers the assumptions on which these forward-looking statements are based to be reasonable, but cautions the reader that these assumptions regarding future events, many of which are beyond its control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect the Corporation. For additional information with respect to these and other factors, see the Annual Report for the year ended October 31, 2017, filed with Canadian securities commissions. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by securities laws.

SOURCE Transat A.T. Inc.

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