Thursday, 13 September 2018

Third quater results for Transat A T

The Canadian Transat A.T. Inc. group, one of the largest integrated tourism companies in the world has released its results for the third quarter which ended on 31st July 2018.


"Like most of our competitors, we're affected by rising fuel prices, which impacted our summer results as we had forecasted in mid-June. Prices always take a certain time to adjust. We are still confident that we will meet our long-term targets, while Air Transat was just named the world's best leisure airline by Skytrax," stated Jean-Marc Eustache, President and Chief Executive Officer of Transat.


"During the quarter, we opened our hotel division's headquarters in Miami and identified attractive opportunities, some of which should materialize soon.".

 
 
Increase in the number of travellers but margins affected by fuel prices
For the third quarter:
  • Revenues of $696.6 million ($733.2 million in 2017).
  • Operating loss of $8.0 million (operating income of $41.0 million).
  • Adjusted operating income1 of $5.1 million ($59.1 million).
  • Net loss attributable to shareholders of $4.0 million (net income attributable to shareholders of $26.6 million).
  • Adjusted net loss3 of $3.0 million (adjusted net income3 of $26.9 million).
For the nine-month period:
  • Revenues of $2.3 billion ($2.3 billion in 2017).
  • Operating loss of $62.5 million ($24.8 million).
  • Adjusted operating loss1 of $19.4 million (adjusted operating income1 of $23.5 million)
  • Net loss attributable to shareholders of $3.9 million ($13.8 million).
  • Adjusted net loss3 of $41.4 million ($17.3 million).
  • Sale of the subsidiary Jonview Canada Inc. for $48.9 million on November 30, 2017.

Third Quarter Highlights
The Corporation posted revenues of $696.6 million, compared with $733.2 million in 2017, a decrease of $36.6 million or 5.0%. The 2017 revenues included $77.0 million from the Jonview subsidiary, which was sold last November. The number of travellers was up 11.5% in the transatlantic market, our main market for the period, while capacity increased by 13.9%. The number of travellers was up 7.9% in the sun destinations market while capacity rose 7.0%. Average selling prices were similar to those of 2017 across all of our markets.

Operations generated adjusted operating income1 of $5.1 million compared with $59.1 million in 2017. The $53.9 million decrease was primarily due to a rise in fuel prices which, combined with the foreign exchange effect, increased operating expenses by $40.3 million. Moreover, adjusted operating income1 for the third quarter of 2017 included $7.1 million from the operations of businesses sold since then.

On a comparable basis, excluding the businesses sold recently (Ocean Hotels and Jonview), adjusted operating income1 decreased by $46.8 million compared with the previous year.
Net loss attributable to shareholders amounted to $4.0 million or $0.11 per share (diluted) compared with a net income of $26.6 million or $0.72 per share (diluted) in 2017. Excluding non-operating items, Transat reported an adjusted net loss3 of $3.0 million ($0.08 per share) for the third quarter of 2018, compared with an adjusted net income3 of $26.9 million ($0.73 per share) in 2017.
Nine-month Period Highlights
The Corporation recognized revenues of $2.3 billion, up 0.8% from 2017. During the winter season, the number of travellers increased by 5.4% in the sun destinations market, our main market for the period. Average selling prices slightly rose across all of our markets. During the third quarter, the number of travellers was up 11.5% in the transatlantic market, the Corporation's main market for the period, and average selling prices remained similar to those of 2017 across all of our markets. These revenue increases offset the loss of revenue from the Jonview subsidiary sold in November 2017.

Operations resulted in an adjusted operating loss1 of $19.4 million compared with an adjusted operating income1 of $23.5 million in 2017, a decrease of $42.9 million. During the winter season, adjusted operating income1 improved by $11.0 million. For the third quarter, the decrease in our adjusted operating income1 was mainly attributable to a rise in fuel prices which, combined with the foreign exchange effect, increased operating expenses by $40.3 million. Moreover, adjusted operating income1 for the third quarter of 2017 included $7.1 million from the operations of businesses sold recently.

On a comparable basis, excluding the businesses sold recently (Ocean Hotels and Jonview), adjusted operating income1 decreased by $30.2 million compared with the previous year.
For the nine-month period, net loss attributable to shareholders was $3.9 million or $0.11 per share (basic and diluted) compared with $13.8 million or $0.37 per share (diluted) for the corresponding nine-month period of 2017. Excluding non-operating items, Transat reported an adjusted net loss3 of $41.4 million ($1.11 per share) for the period ended July 31, 2018, compared with $17.3 million ($0.47 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 selling price was $48.9 million, and the Corporation recognized a gain on business disposal of $31.3 million.

Financial Position
As at July 31, 2018, cash and cash equivalents amounted to $867.2 million, compared with $580.7 million on the same date in 2017. The increase of $286.5 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 1.40, compared with 1.26 as at July 31, 2017. Deposits from customers for future travel amounted to $561.8 million, compared with $509.9 million as at July 31, 2017, an increase of $51.8 million attributable to higher business volume.

Off-balance-sheet agreements, excluding contracts with service providers, amounted to $2,368.5 million as at July 31, 2018, compared with $1,745.2 million as at October 31, 2017. The $623.2 million increase resulted primarily from the agreements signed during the quarter to lease two Airbus A321neos and five Airbus A321neo LRs, for delivery from 2020 to 2022, which will notably replace the wide-body Airbus A330s whose leases will expire during that period. Moreover, during the first quarter, the Corporation entered into agreements to lease two Airbus A321ceos and two Airbus A330s. The increase resulting from these new agreements was partially offset by the repayments made during the period.

Outlook
Fourth quarter 2018 – The transatlantic market outbound from Canada and Europe accounts for a substantial portion of Transat's business during the summer season. For the period from August to October 2018, the Corporation's capacity is higher by 14%. To date, 84% of the capacity has been sold, load factors are 1.1% higher than those of summer 2017 and selling prices of bookings taken are 2.7% lower than those recorded at the same date in 2017. Higher fuel costs, combined with currency variations, will result in a 7.3% increase in operating costs if aircraft fuel prices remain stable and the dollar remains at its current level against the U.S. dollar, the euro and the pound. It should be noted that the price of aircraft fuel increased by 11% between the beginning of April and mid-June.
In the sun destinations market, for which summer is low season, 75% of the capacity marketed has been sold. To date, unit margins are 7.2% lower than those recorded in 2017, considering the impact of higher fuel prices.

Accordingly, and considering the recent significant increase in aircraft fuel costs, the Corporation expects that its overall results for the fourth quarter will be lower than last year.

Winter 2019 – In the sun destinations market, the Corporation's main market for the period, Transat's capacity is higher by 3% than the previous year. To date, 25% of that capacity has been sold and load factors are ahead by 2.7% when compared to 2018. The impact of increased fuel costs, combined with fluctuations in the Canadian dollar, will result in a 3.4% increase in operating expenses if aircraft fuel prices and the dollar against the U.S. dollar remain stable.

The Corporation considers that it is still too early to give any guidance regarding winter season results, especially since comparisons have to be made with a period of 2017 before the hurricanes, which had a significant impact on the rest of the season.

Progress on strategic plan
The Corporation made significant progress on implementing the 2018-2022 strategic plan, but these actions had little impact on the current year. The plan has two primary aims: operational improvement of existing businesses and the launch of a hotel business.
For existing businesses, numerous changes were made to prepare for the coming years.
  • Revenue management, pricing and network planning activities are expected to be fully reconfigured during the year, which will allow for greater fine-tuning of revenue management per flight and margin optimization;
  • Longer-term network management is also being put in place to operate the Corporation's new Airbus fleet, which will be deployed between 2019 and 2022 and will reduce operating costs and increase route density;
  • Expansion of our online presence continues, which earned us the Fl├Ęche d'or for the best customer experience in the tourism, leisure and entertainment category;
  • Cost reduction and margin improvement initiatives continue and should achieve their $150 million target for the plan as a whole;
  • Efforts to improve customer satisfaction have been rewarded by the recognition of Air Transat as the world's best leisure airline by Skytrax.
The newly launched hotel division also saw much progress this year, with the recruitment of its President, the opening of its Miami headquarters, and intense search for land and/or hotel acquisitions, which should enable the Corporation to close transactions in the near future.
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$)




Third quarter
First nine months
2018
2017
2018
2017
Revenues
696,551
733,152
2,324,314
2,306,794





Operating income (loss)
(7,994)
40,952
(62,536)
(24,780)

Restructuring charge
1,350
1,350

Depreciation and amortization
13,215
18,077
43,294
49,435

Premiums related to derivatives matured during the period
(130)
(1,324)
(130)
(2,521)
Adjusted operating income (loss)1
5,091
59,055
(19,372)
23,484





Income (loss) before taxes
(4,754)
37,731
(10,621)
(18,996)

Restructuring charge
1,350
1,350

Fuel-related derivatives and other derivatives
1,512
341
(9,069)
(3,533)

Gain on business disposals
(31,064)

Premiums related to derivatives matured during the period
(130)
(1,324)
(130)
(2,521)
Adjusted pre-tax income (loss)2
(3,372)
38,098
(50,884)
(23,700)





Net income (loss) attributable to shareholders
(4,038)
26,588
(3,943)
(13,839)

Restructuring charge
988
988

Fuel-related derivatives and other derivatives
1,107
250
(6,668)
(2,586)

Gain on business disposals
(30,736)

Premiums related to derivatives matured during the period
(95)
(969)
(95)
(1,845)
Adjusted net income (loss)3
(3,026)
26,857
(41,442)
(17,282)





Diluted income (loss) per share
(0.11)
0.72
(0.11)
(0.37)

Restructuring charge
0.03
0.03

Fuel-related derivatives and other derivatives
0.03
0.01
(0.18)
(0.07)

Gain on business disposals
(0.82)

Premiums related to derivatives matured during the period
(0.03)
(0.05)
Adjusted net income (loss) per share3
(0.08)
0.73
(1.11)
(0.47)

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