A challenging start to winter, but no shortage of travellers

• Revenues of $810.2 million, compared with $792.6 million in 2010, reflecting an increase in the number of travellers to sun destinations.
• Operating loss¹ of $14.6 million, compared with $12.4 million in 2010.
• Net loss of $13.5 million, compared with $13.9 million in 2010.
• Adjusted after-tax loss³ of $19.4 million, compared with $18.2 million in 2010.

 

Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, posted revenues of $810.2 million for the quarter ended January 31, 2011, compared with $792.6 million in 2010, an increase of $17.6 million, or 2.0%. The Corporation recorded an operating loss1 of $14.6 million, compared with $12.4 million in 2010, and a net loss of $13.5 million ($0.36 per share on a diluted basis), compared with $13.9 million ($0.37 per share on a diluted basis) in 2010. Before non-cash and non-operating items, Transat reported adjusted after-tax loss3 of $19.4 million ($0.51 per share on a diluted basis), compared with $18.2 million ($0.48 per share on a diluted basis) in 2010.

“It was a difficult quarter, mainly because of ongoing intense competition in the sun destinations market, which consumers are taking advantage of,” said President and Chief Executive Officer Jean-Marc Eustache.

First quarter highlights

The Corporation’s first-quarter revenues increased by $17.6 million. This increase is mainly attributable to more travellers to sun destinations. The increase in revenues was offset in part by the strength of the Canadian dollar against the euro and pound sterling, which caused a decrease in the revenues of foreign business units when expressed in Canadian dollars. For the quarter, Transat recorded a 2.9% revenue increase in North America, and a 0.9% decrease in Europe.

The Corporation recorded an operating loss of $14.6 million, compared with $12.4 million in 2010, as increased supply by tour operators on sun destinations translated into downward pressure on selling prices, especially when nearing departure dates. The decrease in margin is also attributable to higher fuel and hotel costs, offset in part by the strength of the Canadian dollar and better aircraft utilization.

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $18.8 million (2.9%) compared with the same period in 2010. The increase is attributable to a 1.8% increase in the number of travellers. North American business units recorded an operating loss of 0.9%, compared with 0.6% in 2010. The increase is attributable mainly to the combination of higher capacity and lower selling prices for sun packages.

Revenues of European business units, which are generated by sales made in Europe and in Canada, increased in local currencies but decreased by $1.2 million (0.9%) over 2010. The favourable impact from higher average selling prices was offset by the weaker euro and pound sterling, as well as, to a lesser extent, by the unrest in North Africa. In the United Kingdom, Canadian Affair managed to increase both traveller numbers and average selling prices (including in Canadian dollars). European operations generated an operating loss of $8.6 million (6.4%) for the quarter, compared with $8.5 million (6.2%) in 2010.

Financial position

The Corporation’s free cash totalled $199.0 million as at January 31, 2011, compared with $147.7 million as at January 31, 2010. Total balance sheet debt decreased by $92.5 million during the 12-month period, to $13.8 million. The net cash4 position improved by $143.7 million, from a net cash position of $41.5 million as at January 31, 2010 to $185.2 million as at January 31, 2011. Most of the improvement over the past year is due to the operating profit and better working capital management.

Off-balance-sheet agreements stood at $606.0 million as at January 31, 2011, compared with $370.0 million as at January 31, 2010, reflecting new leases for additional Airbus A330s to be introduced in Air Transat’s fleet.
Cash flows from operating activities increased by $68.8 million, from cash used by operations of $21.3 million in 2010, to cash flows generated by operations of $47.6 million in 2011. The increase stems mainly from improved working capital management during the winter.

Outlook

The Canadian sun destinations market accounts for a very significant portion of Transat’s business in the winter. For the second quarter 2011, the Corporation’s capacity is approximately 9% higher than the actual capacity offered last year; bookings and load factors are superior to last year at the same date; and selling prices are similar.

In France, bookings are slightly higher than last year, after having lost momentum following the events in North Africa.

Transat expects the results of the second quarter to be similar to last year, as the favourable impact stemming from a strong Canadian dollar will be offset by higher aircraft fuel costs.

On the summer transatlantic market, capacity and bookings are 10% higher than last year; load factors and selling prices are similar.

There is currently significant uncertainty surrounding oil prices and the upward pressure that this will have on the Corporation’s costs for the summer season. Transat has introduced additional fuel surcharges, and continues to use hedging instruments, in order to manage this risk.

Additional Information

The results of 2010 and 2011 were affected by non-cash and non-operating items, as summarized in the following table:

Hedging—The Corporation records any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel price risk in the statement of income. For the first quarter 2011, this translates into a $3.8 million non-cash gain ($2.8 million after income taxes) compared with a $1.2 million gain ($0.9 million after income taxes) in 2010.

The Corporation also 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 balance sheet and statement of comprehensive income rather than in the statement of income. For the first quarter 2011, Transat recorded a $0.4 million loss ($0.4 million after income taxes) on these foreign-currency hedging instruments, compared with a $15.0 million gain ($10.4 million after income taxes) in 2010.

Commercial paper—Results for the quarter include a $3.1 million gain ($3.1 million after income taxes) stemming from the revaluation of the Corporation’s investments in asset-backed commercial paper (ABCP). In 2010, Transat had recorded a revaluation gain of $3.5 million ($3.5  million after income taxes). As of January 31, 2011, the total accumulated provision represented 36.2% of the notional amount of the Corporation’s $117.7 million in ABCP investments.

Before the aforementioned non-cash and non-operating items, Transat posted an adjusted after-tax loss of $19.4 million ($0.51 per share on a diluted basis) for the quarter, compared with an adjusted after-tax loss of $18.2 million ($0.48 per share on a diluted basis) in 2010.

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

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

(1) MARGIN (OPERATING LOSS): Revenues less operating expenses.

(2) ADJUSTED INCOME (LOSS): Income (loss) before income taxes, non-controlling interest in business units’ results, impact of fuel hedge accounting, ABCP revaluation, and restructuring charges (gain on restructuring).

(3) ADJUSTED AFTER-TAX INCOME (LOSS): Net income (loss) before impact of fuel hedge accounting, ABCP revaluation and restructuring charges (gain on restructuring), net of related taxes.

(4) NET CASH: Cash and cash equivalents not held in trust or otherwise reserved, less balance sheet debt.

For more information on non-GAAP financial measures, please refer to the “Non-GAAP financial measures” section of the Management’s Discussion and Analysis report.

Conference call

First quarter 2011 conference call: Thursday, March 10, 2011, 2.30 p.m. Dial 1 866 542-4146 or 514 392-9193. 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 1011807 pound sign, until April 10, 2011.

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 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 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, 2010, 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.