Transat A.T. Inc. - Results for second quarter 2017

Improvement during the second quarter
leads to winter results on par with those of the previous year

For the second quarter:

  • Revenues of $884.3 million, compared with $888.2 million in 2016.
  • Operating loss of $15.1 million, compared with $13.7 million in 2016.
  • Adjusted operating income1 of $1.5 million, compared with an adjusted operating loss1 of $5.0 million in 2016.
  • Net loss attributable to shareholders of $8.4 million, compared with $25.0 million in 2016.
  • Adjusted net loss3 of $8.1 million, compared with $11.9 million in 2016.

For the first six-months:

  • Revenues of $1.6 billion, compared with $1.6 billion in 2016.
  • Operating loss of $65.7 million, compared with $54.2 million in 2016.
  • Adjusted operating loss1 of $35.6 million, compared with $36.7 million in 2016.
  • Net loss attributable to shareholders of $40.4 million, compared with $86.1 million in 2016.
  • Adjusted net loss3 of $44.1 million, compared with $42.2 million in 2016.

MONTREAL, June 8, 2017 /CNW Telbec/ - Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, posted revenues of $884.3 million for the quarter ended April 30, 2017, compared with $888.2  million for the same period in 2016, a decrease of $3.9 million, or 0.4%. The Corporation recorded adjusted operating income1 of $1.5 million, versus an adjusted operating loss1 of $5.0 million in 2016, and a net loss attributable to shareholders of $8.4 million ($0.23 basic and diluted earnings per share), compared with $25.0 million ($0.68 basic and diluted earnings per share) in 2016. Before non-operating items, Transat reported an adjusted net loss3 of $8.1 million ($0.22 per share) for the second quarter of 2017, compared with $11.9 million ($0.32 per share) in 2016.

"As we had expected, our second quarter was better than last year's, contributing to an overall winter result that is comparable to that posted for the winter of 2016," commented Jean-Marc Eustache, President and Chief Executive Officer of Transat. "We continued to absorb strong negative pressure from exchange rates and fuel prices, which had an impact of more than $39 million on our costs during the season. If the current trends continue, the results for the second six-month period should also be similar to those of last year," he added.

Second-quarter highlights

The Corporation posted revenues of $884.3 million, compared with $888.2 million for the corresponding 2016 quarter. The decrease of $3.9 million (0.4%) was due to the higher proportion of flights sold without a land portion versus all-inclusive packages compared with 2016. The number of travellers on the Sun destinations market, the Corporation's primary market for the period, increased by 0.3%. Meanwhile, the decline in revenues was mitigated by an increase of 8.2% in the number of travellers on the transatlantic market. In addition, average selling prices were higher on all markets.

The Corporation reported adjusted operating income1 of $1.5 million, compared with an adjusted operating loss1 of $5.0 million in 2016, an improvement of $6.5 million. This stemmed mainly from the increase in average selling prices. The improvement in adjusted operating income1 was dampened by depreciation of the Canadian dollar vis-à-vis the U.S. currency—which, combined with an increase in fuel prices, resulted in a rise in operating costs of $21.0 million for the quarter—as well as by an increase in air costs.

Ocean Hotels, which is 35% owned by Transat, contributed $5.9 million to the Corporation's net results for the quarter, compared with $6.2 million in 2016. Transat's equity participation in Ocean Hotels accounted for $109.1 million in assets as at April 30, 2017, compared with $97.7 million as at October 31, 2016.

On April 3, 2017, the Corporation purchased a stake in a hotel near Puerto Vallarta on the Pacific coast of Mexico, operating under the name Rancho Banderas All Suites Resort, acquiring a 50% equity interest in the company Desarrollo Transimar, S.A. de C.V., its owner and operator, for $10.0 million US [$13.4 million]. The hotel currently has 49 rooms, and will be expanded between now and 2018 to a capacity of 263 rooms. This transaction represents a further step in hotel management for Transat, as the Corporation continues to assess the opportunity, as previously announced, of either acquiring the entirety of Ocean Hotels or selling the 35% stake that it currently owns with a view to reinvesting in another hotel project.

Six-month highlights

The Corporation posted revenues of $1.6 billion for the first six months of the year, compared with $1.6 billion in 2016. During the period, the Corporation reduced its capacity on the Sun destinations market by 2.3%, which resulted in a decrease of 1.4% in the number of travellers on that market. The impact of that decrease was offset by an increase of 6.5% in the number of travellers on the transatlantic market, the result of an increase in capacity of 9.6% on that market. Average selling prices increased on the Sun destinations market, and decreased slightly on transatlantic market.

For the winter season, the Corporation posted an adjusted operating loss1 of $35.6 million, compared with $36.7 million in 2016, an improvement of $1.1 million. The increase in average selling prices on the Sun destinations market was, for all practical purposes, offset by an unfavourable exchange-rate impact—which, combined with an increase in fuel prices, resulted in an increase in operating costs of $39.3 million for the period—as well as by higher air costs.

For the six-month period, Ocean Hotels accounted for $9.4 million of the Corporation's income, compared with $8.2 million in 2016. That increase was attributable to higher operating profitability.

Financial position

As at April 30, 2017, the Corporation's free cash totalled $566.3 million, compared with $440.6 million at the same date in 2016. The working-capital ratio was 1.14, versus 1.02 as at April 30, 2016. Deposits from customers for future travel amounted to $523.8 million, versus $483.7 million a year earlier; the increase is attributable to the higher number of summer-season bookings compared with last year at this time. Off-balance-sheet agreements, excluding contracts with service providers, stood at $770.3 million as at April 30, 2017, compared with $710.3 million as at October 31, 2016, the increase being attributable to the signing of agreements during the six-month period for the leasing of four Airbus A330 aircraft, as well as the decline in value of the Canadian dollar vis-à-vis the U.S. currency. The increase was partially offset by payments made during the period.

Outlook

Summer 2017 – The transatlantic market outbound from Canada and Europe accounts for a substantial portion of Transat's business during the summer season. For the period May to October 2017, total industry capacity is higher by 4%, while that of the Corporation is higher by 7%. To date, Transat's load factors on that market are higher by 1.4% than those of summer 2016, 64% of the capacity has been sold, and selling prices of bookings taken are similar to those recorded at the same date in 2016. The impact of fuel costs, combined with currency exchange fluctuations, will not result in any increase in operating expenses if fuel prices remain stable and the dollar remains at its current level against the U.S. dollar, the euro and the pound. Since February, prices on the transatlantic market have been steadily improving.

On the Sun destinations market outbound from Canada, for which summer is low season, Transat's capacity is equivalent to that marketed at the same date last year. To date, 53% of that capacity has been sold, load factors are higher by 8.0%, and selling prices are up by 5.9%. The impact of fuel costs, combined with currency-exchange fluctuations, will not result in any increase in operating expenses if fuel prices remain stable and the dollar remains at its current level against the U.S. dollar. Unit margins are currently higher by 3.0% compared with those recorded at the same date last year.

If current trends hold, and considering the implementation costs of the feeder program, Transat expects that its global results for the second six-month period will be similar to those of last year.

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 $ Cdn)




 

CONTINUING OPERATIONS

Second quarter

First six months

2017

2016

2017

2016

Revenues

884,310

888,221

1,573,642

1,613,944






Operating income (loss)

(15,061)

(13,701)

(65,732)

(54,243)


Depreciation and amortization

17,152

11,718

31,358

23,224


Premiums related to derivatives matured during the period

(583)

(3,019)

(1,197)

(5,666)

Adjusted operating income (loss)1  

1,508

(5,002)

(35,571)

(36,685)






Income (loss) before taxes

(11,616)

(34,763)

(56,727)

(106,819)


Fuel-related derivatives and other derivatives

930

3,877

(3,874)

37,964


Loss on disposal of a subsidiary

843

843


Asset impairment

15,809

15,809


Premiums related to derivatives matured during the period

(583)

(3,019)

(1,197)

(5,666)

Adjusted pre-tax income (loss)2

(11,269)

(17,253)

(61,798)

(57,869)






Net income (loss) attributable to shareholders

(8,354)

(24,952)

(40,427)

(86,107)


Net income (loss) from discontinued operations

(381)

7,380


Fuel-related derivatives and other derivatives

681

2,838

(2,836)

27,790


Loss on disposal of a subsidiary

615

615


Asset impairment

12,222

12,222


Premiums related to derivatives matured during the period

(427)

(2,210)

(876)

(4,148)

Adjusted net income (loss)3

(8,100)

(11,868)

(44,139)

(42,248)






Diluted earnings (loss) per share

(0.23)

(0.68)

(1.10)

(2.33)


Net income (loss) from discontinued operations

(0.01)

0.20


Fuel-related derivatives and other derivatives

0.02

0.08

(0.08)

0.75


Loss on disposal of a subsidiary

0.02

0.02


Asset impairment

0.33

0.33


Premiums related to derivatives matured during the period

(0.01)

(0.06)

(0.02)

(0.11)

Adjusted net income (loss) per share3

(0.22)

(0.32)

(1.20)

(1.14)

 

Hedging – The Corporation records in the statement of income 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 stemming from its expenses and/or revenues in foreign currencies. For the second quarter of 2017, this translates into a $0.9 million non-cash loss ($0.7 million after income taxes), compared with one of $3.9 million ($2.8 million after income taxes) in 2016. For the six-month period, this translates into a $3.9 million non-cash loss ($2.8 million after income taxes), compared with a $38.0 million loss ($27.8 million after income taxes) in 2016.

The Corporation uses hedging instruments to mitigate exchange-rate exposure stemming from its expenses and/or revenues in foreign currencies. Accordingly, under applicable accounting standards, any fluctuations resulting from mark-to-market adjustments of these instruments are recorded in the consolidated statement of financial position and consolidated statement of comprehensive income rather than in the consolidated statement of income. For the second quarter of 2017, Transat recorded a gain of $11.4 million ($8.3 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $40.8 million ($29.9 million after income taxes) in 2016. For the six-month period, Transat recorded a gain of $5.7 million ($4.1 million after income taxes) on these foreign-currency hedging instruments, compared with a loss of $35.2 million ($25.8 million after income taxes) in 2016.

Summary of non-operational items – Before non-operating items, Transat posted an adjusted net loss3 of $8.1 million for the second quarter of 2017 ($0.22 per share), compared with one of $11.9 million in 2016 ($0.32 per share). For the first six months, the Corporation posted an adjusted net loss3 of $44.1 million ($1.20 per share on a diluted basis) compared with one of $42.2 million for the first six months of 2016 ($1.14 per share on a diluted basis).

Transat A.T. Inc. is a leading integrated international tourism company specializing in holiday travel and active in air transportation, accommodation, travel packaging and distribution. It operates mainly in Canada, Europe, Mexico and the Caribbean, with some 25 destination countries, and distributes products in over 50 countries. Based in Montreal, 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. The vacation travel companion par excellence, Transat celebrates its 30th anniversary in 2017 (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 its operational performance before the impact of the above-mentioned factors, thus ensuring 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 disposal of a subsidiary, restructuring charge, lump-sum payments related to collective agreements, impairment of assets 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 its financial performance before the impact of the above-mentioned factors, thus ensuring 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 disposal of a subsidiary, restructuring charge, lump-sum payments related to collective agreements, impairment of assets and other significant unusual items, including premiums for fuel-related derivatives and other derivatives matured during the period, net of related taxes. The Corporation uses this measure to assess its financial performance before the impact of the above-mentioned factors, thus ensuring better comparability of financial results. Adjusted net income is also used in calculating the variable compensation of employees and senior executives.

 

Conference call

Second quarter 2017 conference call: Thursday, June 8, 10:00 a.m. Dial 1-800-926-9801. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1-800-558-5253, access code 21846663, until July 7, 2017.

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 furnished 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. Similarly, the release refers to discussions with H10 Hotels, which may or may not lead to a transaction. 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. Factors that could lead actual results to differ include, among others, extreme weather conditions, fuel prices, war, terrorism, market and general economic conditions, disease outbreaks, demand fluctuations related to seasonality in the travel industry, ability to reduce operating costs and workforce, labour relations, collective agreements and labour conflicts, issues related to pensions, exchange rate, interest rates, future funding, evolution of legal environment, introduction of unfavourable regulations, lawsuits and legal challenges, 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 Information Form and Annual Report for the year ended October 31, 2016, 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.

For further information: 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

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