Improved Selling Prices Over Winter 2012

First Quarter

• Revenues of $805.7 million, compared with $829.3 million in 2012.
• Operating loss before amortization and depreciation¹ of $21.0 million, compared with $31.8 million in 2012.
• Net loss of $15.1 million, compared with $29.5 million en 2012.
• Adjusted after-tax loss of $21.6 million, compared with $29.9 million in 2012.

Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, posted revenues of $805.7 million for the quarter ended January 31, 2013, compared with $829.3 million in 2012, a decrease of $23.6 million, or 2.8%. The Corporation recorded an operating loss before amortization and depreciation1 of $21.0 million, compared with $31.8 million in 2012 and a net loss of $15.1 million ($0.39 per share on a diluted basis), compared with $29.5 million ($0.77 per share on a diluted basis) in 2012. Before non-operating items, Transat reported an adjusted after-tax loss3 of $21.6 million in 2013 ($0.56 per share on a diluted basis), compared with $29.9 million ($0.79 per share on a diluted basis) in 2012.

“Changes brought to our organization over the last 18 months, as well as our decision to slightly reduced capacity, have contributed to the improvement of our results,” said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

First Quarter Highlights

The Corporation posted revenues of $805.7 million, compared with $829.3 million in 2012, and an operating loss before amortization and depreciation1 of $21.0 million, compared with $31.8 million in 2012. The decrease in revenues is mainly attributable to the Corporation’s decision to reduce capacity on its markets (Sun, transatlantic and France), hence a 12.6% reduction in the number of travellers. On all markets, selling prices were higher than in 2012.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $10.1 million (1.4%) compared with the same period in 2012. For the quarter, the capacity on sun destinations was down 12% compared with 2012. Capacity on the transatlantic market was down 18%. North American business units recorded an operating loss before amortization and depreciation of $8.3 million, compared with $19.1 million in 2012. The improvement in margin is mainly attributable to higher selling prices during the quarter.
 
Revenues of European business units, which are generated by sales made in Europe and in Canada, decreased by $13.5 million (10.5%) over 2012, mainly due to a decision to reduce capacity. European operations generated an operating loss before amortization and depreciation of $12.7 million, similar to the previous year.

Financial Situation

As at January 31, 2013, compared to the same date in 2012, cash stood at  $247.9 million, compared with $214.0 million; working capital ratio was 1.0 compared with 0.99 and deposits from customers for future travel were $592.0 million compared with $598.4 million. Off-balance-sheet agreements stood at $531.6 million as at January 31, 2013, the decrease since January 31, 2012 being due to payments made during the 12-month period.

Outlook for the second quarter

The Canadian sun destinations market accounts for a very significant portion of Transat’s business in the winter. For that market, Transat’s capacity in the second quarter is approximately 10% inferior than last year, load factors are inferior, selling prices are higher.

On the transatlantic market, on which it is low-season, capacity is 18% inferior to the previous year, load factors are similar and selling prices are higher.

In France, where it is also low-season, medium-haul bookings are similar to last year, and long-haul bookings are 7% inferior (based on the Corporation’s decision to reduce capacity). Selling prices are slightly higher on both market segments.

To the extent the aforementioned trends hold, Transat expects better results than last year for its second quarter.

On the transatlantic market, for the summer, Transat’s capacity is down by 11% compared with 2012. Load factors are similar and selling prices are higher. In France, compared with last year at the same date, bookings are slightly lower and selling prices are similar.

Additional information

The results were affected by 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 of 2013, this translates into a $8.8 million non-cash gain ($6.4 million after income taxes) compared with a gain of $1.6 million ($1.2 million after income taxes) in 2012.

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 2013, Transat recorded a $0.9 million loss ($0.6 million after income taxes) on these foreign-currency hedging instruments, compared with a $0.4 million gain ($0.2 million after income taxes) in 2012.

Commercial paper—On November 8, 2012, the Corporation sold the remainder of its investment in asset-backed commercial paper (ABCP) for a total compensation of $27.5 million. This resulted in no gain or loss. In 2012, the results of the first quarter included a loss on revaluation of $0.8 million ($0.7 million after taxes).

Summary of non-operating items—Before non-operating items, Transat posted an adjusted after-tax loss of $21.6 million ($0.56 per share on a diluted basis) for the quarter, compared with $29.9 million ($0.79 per share on a diluted basis) in 2012.

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. Transat’s firm commitment to sustainable development of the tourism industry is reflected in its multiple corporate responsibility initiatives. (TSX: TRZ.B, TRZ.A)

NOTES

The following are non-IFRS 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, impact of fuel hedge accounting, ABCP revaluation, gain on disposal of a subsidiary, impairment of goodwill and restructuring charges (or gains).
(3) ADJUSTED AFTER-TAX INCOME (LOSS): Net income (loss) attributable to shareholders before impact of fuel hedge accounting, ABCP revaluation, gain on disposal of a subsidiary, impairment of goodwill and restructuring charges (or gains), net of related taxes.
(4) NET CASH: Cash and cash equivalents not held in trust or otherwise reserved, less balance sheet debt.

Conference call

First Quarter 2013 conference call: Thursday, March 14, 2013, 2.30 p.m. Dial 1 800-768-8691. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 633-8625 or 416 626-4144, access code 21650797, until April 13, 2013.

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. 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, 2012, 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.