Margin improves substantially thanks to reduced costs and lower fuel prices
-Revenues of $819.4 million, down 4.7% from the $859.9 million in 2008; decline attributable to lower volumes and selling prices.
-Margin¹ of $27.2 million, compared with $14.6 million in 2008, an increase of 86% attributable mainly to a reduction of operating costs and lower fuel prices.
-Net income of $31.0 million ($0.94 per share fully diluted), compared with a net loss of $0.9 million (loss of $0.03 per share, fully diluted) for the corresponding 2008 period.
-Net income of $7.0 million or $0.21 per share fully diluted, compared with $2.1 million or $0.06 per share in 2008, before impact of non-cash items (adjusted net income).

Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, posted revenues of $819.4 million for the quarter ended July 31, 2009, compared with $859.9 million for the corresponding period of 2008—a decrease of $40.5 million or 4.7%. The Corporation recorded a margin¹ of $27.2 million, up from $14.6 million in 2008, or 86%, and net income of $31.0 million ($0.94 per share on a fully diluted basis), compared with a net loss of $0.9 million ($0.03 per share on a fully diluted basis) in 2008.

“These results, posted during a quarter marked by an economy in recession, a flu outbreak and continuing abundant supply, are satisfactory under the circumstances. Prudence and rigour remain the watchwords, but the tourism market is proving to be relatively resilient,” stated Jean-Marc Eustache, President and Chief Executive Officer of Transat A.T. Inc.

Transat posted revenues of $2,825.7 million for the first nine months of fiscal 2009, compared with $2,722.4 million for the corresponding period in 2008, an increase of $103.3 million. The margin decreased to $57.8 million in 2009 from $104.6 million in 2008. Net income stood at $43.7 million, or $1.32 per share fully diluted, versus $33.0 million ($0.99 per share fully diluted) in 2008.

As at July 31, 2009, the Corporation’s cash and cash equivalents totalled $215.2 million, compared with $259.6 million as at July 31, 2008 and $145.8 million as at October 31, 2008.

Highlights of the third quarter

Revenues of North American subsidiaries, which stem from sales made in Canada and abroad, were down $31.4 million (6.2%) during the third quarter, compared with the same period in 2008. The decrease was attributable to a drop in average selling prices and to a 6.5% decrease in the volume of travellers, the latter largely attributable to a decline of sales in Europe for Canadian destinations. Transat’s North American subsidiaries reported a margin¹ of 1.1%, compared with an operating loss of 2.0% in 2008.
Revenues of European subsidiaries, which stem from sales made in Europe and in Canada, decreased by $9.1 million (2.6%) during the third quarter, compared with the corresponding period of 2008, despite a 4.7% increase in traveller volume. The increase in volume came from Canadian Affair, which sells in the United Kingdom and in Canada, partially offset by lower volumes in France, especially in the long-haul market segment. The Corporation’s European subsidiaries reported a margin of $22.0 million, or 6.5%, for the quarter, compared with $25.0 million (7.1%) in 2008. The unfavourable variance in margin is due in part to fuel-hedging operations.

Highlights of the nine-month period ended July 31

For the first nine months, revenues of North American subsidiaries, which stem from sales made in Canada and abroad, were up $62.1 million (3.0%), compared with the same period in 2008. The increase was driven by a 2.4% rise in the volume of travellers, fueled in part by a 17.7% increase in the number of Canadian travellers to the Caribbean and Mexico during the winter season. North American subsidiaries reported a margin¹ of 2.1% compared with 3.9% in 2008. The unfavourable variance in margin is mainly due to downward pressure on selling prices during the winter season, caused by excess supply and the ensuing strong competition on the Canadian market, mainly for Caribbean and Mexico destinations.
Revenues of European subsidiaries, which stem from sales made in Europe and in Canada, increased by $41.2 million (6.3%), compared with the corresponding period of 2008. The increase in both revenues and operating expenses was due to the strength of the euro against the dollar, among other factors. European subsidiaries posted an increase in traveller volume of 5.5% compared to the same period in 2008, largely fueled by an increase of Canadian Affair’s sales in Canada. The margin stood at $12.5 million, or 1.8%, for the period, compared with $23.7 million (3.6%) in 2008. The unfavourable variance in margin is due in part to higher air costs during the 2009 winter season, as well as fuel-hedging operations.

Non-cash and non-operating items

Based on updated assumptions, the Corporation increased its provisions for writedowns on asset-backed commercial paper (ABCP) by $6.9 million ($6.6 million after tax) during the quarter. The total provision for writedowns of $64.3 million as at July 31, 2009, represents 47.8% of the new nominal value on ABCP holdings of $134.6 million.

The Corporation recorded a non-cash and non-operating gain of $44.4 million ($30.6 million after tax) during the third quarter of 2009, compared with a non-cash and non-operating loss of $4.7 million ($3.0 million after tax) in the third quarter of 2008, representing the change in the fair value of the forward contracts it uses to manage fuel prices fluctuation risks.

Agreement with credit card processor

Transat signed an amending agreement for the processing of credit card transactions with its primary credit card processor in Canada. This amending agreement takes effect immediately and will run to August 2012. Pursuant to the amending agreement, transaction proceeds will be segregated in a separate account, in Transat’s name, for 30 days before being transferred to Transat’s trust account in compliance with the applicable Canadian provincial legislation. However, under the amending agreement, Transat will not be required to comply with any other financial requirements. A substantial portion of Transat’s Canadian sales are processed through credit cards, with the remaining sales being processed through cash based transactions. The amending agreement will have no significant impact on Transat’s operations. 

Outlook for the fourth quarter

With regard to Canada-Europe travel, which represents an important part of the Corporation’s business in the fourth quarter, reservations from Canada to Europe are higher than the 2008 levels whereas reservations from Europe are trailing. The prices should be lower but these should be partially offset by the lower fuel costs and potentially by higher load factors.
Reservations and the passenger load factor for travel to sun destinations from Canada are similar to 2008. Lower prices could be offset by lower fuel costs and the positive impact of lower airline seat costs.
In France, medium-haul travel is tracking higher than in 2008, whereas long-haul travel continues to trail behind. In France, a reduction in selling prices may not be fully compensated by a reduction in fuel costs.
Transat A.T. Inc. is an integrated international tour operator with more than 60 destination countries and that distributes products in over 50 countries. A holiday travel specialist, Transat operates mainly in Canada and Europe, as well as in the Caribbean, Mexico and the Mediterranean Basin. Montreal-based Transat is also active in air transportation, accommodation, destination services and distribution. (TSX: TRZ.B, TRZ.A)

NOTES

1. MARGIN: Revenues less operating expenses (non-GAAP financial measure used by management as an indicator to evaluate ongoing and recurring operational performance).
2. ADJUSTED INCOME: Income before income taxes, non-controlling interest in business units’ results, impact of fuel hedge accounting and ABCP revaluation.
3. ADJUSTED NET INCOME: Net income before impact of fuel hedge accounting and ABCP revaluation.

Conference call

Third quarter 2009 conference call: Thursday, September 10, 2009, 10 a.m. Dial 1-877-922-4773 or 514-392-1478. Name of conference: Transat. Webcast www.transat.com. The archived call will be available at 1-800-408-3053 or 514-861-2272, access code 5585273 pound sign, until October 9, 2009.

Non-GAAP measures

Transat prepares its financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”). We will occasionally refer to non-GAAP financial measures in the news release. These non-GAAP financial measures do not have any meaning prescribed by GAAP 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 GAAP. 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 the assumptions used in the valuation of the ABCP securities will materialize, and that travel reservations will follow the trends. In making these statements, the Corporation has assumed that the trends in reservations, fuel prices and other costs will continue throughout the remainder of the season and that the margins (EBITDA) in dollars will be affected by competition and an economic slowdown. 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. Factors that could lead actual results to differ include, among others, extreme weather conditions, 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, 2008, 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.