An unsurprising start to the winter season

• Revenues of $689.3 million, compared with $725.7 million in 2016.
• Operating loss of $50.7 million, compared with $40.5 million in 2016.
• Adjusted operating loss¹ of $37.1 million, compared with $31.7 million in 2016.
• Net loss attributable to shareholders of $32.1 million, compared with $61.2 million in 2016.
• Adjusted net loss³ of $36.0 million, compared with $30.4 million in 2016.

MONTREAL, March 16, 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 $689.3 million for the quarter ended January 31, 2017, compared with $725.7 million in 2016, a decrease of $36.4 million, or 5.0%. The Corporation recorded an adjusted operating loss¹ of $37.1 million, versus $31.7 million in 2016, and a net loss attributable to shareholders of $32.1 million ($0.87 per share, basic and diluted), compared with $61.2 million ($1.43 per share, basic and diluted) in 2016. Before non-operating items, Transat reported an adjusted net loss³ of $36.0 million ($0.98 per share) for the first quarter of 2017, compared with one of $30.4 million ($0.82 per share) in 2016.

"Our organization's performance is much better, given that our cost-reduction and margin-improvement initiatives resulted in an improvement of $75 million last year compared to 2014, and we are expecting to reach $100 million this year," said Jean-Marc Eustache, President and Chief Executive Officer of Transat. He continued: "At the moment, though, the effects of our initiatives are masked by the decline in value of the Canadian dollar. Over the three years of our plan, if trends continue as before, fuel costs and especially exchange-rate fluctuations will have driven up costs for Sun destinations packages alone by more than $100 million, or $140 per package. Naturally, we can't pass that expense on to the consumer. Considering, however, that the results from the second quarter last winter were affected by multiple adverse events, it is likely that our second-quarter results this year will show a slight improvement over 2016."

First-quarter highlights

The Corporation posted revenues of $689.3 million, compared with $725.7 million in 2016. The decrease of $36.4 million (5.0%) stems primarily from a decline of 3.5% in the number of passengers on the Sun destinations market (the main market for this period), due to the Corporation's decision to reduce its product supply on that market by 5.2% in the first quarter. The decrease also resulted from the higher proportion of flights sold without a land portion versus all-inclusive packages compared with 2016. On the transatlantic market, product supply increased by 10.1%, which resulted in an increase of 4.4% in the number of travellers. Average selling prices were higher on the Sun destinations market, and lower on the transatlantic market.

The Corporation posted an adjusted operating loss¹ of $37.1 million, versus one of $31.7 million in 2016; the loss this year was thus greater by $5.4 million. This result stemmed from the combined effect of fluctuations in the value of the Canadian dollar compared to the U.S. currency and in fuel prices, which resulted in an increase in operating costs of $18.3 million during the quarter, offset by higher average selling prices for Sun destinations packages.

Ocean

Ocean Hotels, which is 35% owned by Transat, contributed $3.6 million to the Corporation's results for the quarter, compared with $1.9 million in 2016. That increase stems from improved profitability as well as the strength of the U.S. dollar versus other currencies. Transat's equity participation in Ocean Hotels accounted for $99.1 million in assets as at January 31, 2017, compared with $97.7 million as at October 31, 2016.

As announced in December, Transat is still assessing the opportunity of either acquire the entirety of Ocean Hotels, or sell the 35% it currently owns, with a view to reinvest in another hotel project. A decision on this topic will be made in the coming months.

Sale of Transat France and Tourgreece

On October 31, 2016, Transat A.T. Inc. closed the sale of its France- and Greece-based tour-operating business units (Transat France and Tourgreece, respectively) to multinational tourism company TUI AG for €63.4 million ($93.3 million). The buyer had 90 business days following the sale closing date in which to review the financial statements. On January 27, 2017, TUI AG confirmed the sale price of €63.4 million following final closure and auditing of the accounts.

The disposal of Transat France and Tourgreece has no impact on either Transat's transatlantic program or Air Transat operations.

Financial position

As at January 31, 2017, the Corporation's free cash totalled $454.8 million, compared with $427.5 million at the same date in 2016, net of the cash held by the Transat France and Tourgreece business units, which was classified as held for sale. The working-capital ratio was 1.15, against 1.06 as at January 31, 2016. Deposits from customers for future travel amounted to $597.7 million, versus $609.4 million a year earlier; the decrease results from the Corporation's decision to focus its cruise product offering on packaged products. Off-balance-sheet agreements, excluding contracts with service providers, stood at $719.3 million as at January 31, 2017, compared with $710.3 million as at October 31, 2016, the increase being attributable to the signing of lease agreements during the period for two Airbus A330 aircraft, partially offset by payments made during the period and by the increase in value of the Canadian dollar against the U.S. currency.

Outlook

On the Sun destinations market outbound from Canada, the Corporation's main market segment in the winter, Transat's capacity for the second quarter is equal to that offered last year. To date, 82% of that capacity has been sold, bookings are ahead by 1.1%, and load factors are higher by 0.9%. The impact of the weakened Canadian dollar, added to the increase in fuel costs, will be a 3.3% increase in operating costs if the dollar and fuel costs remain at their current levels. At this moment, unit margins are higher by 0.6% than last year at this time.

On the transatlantic market, currently in low season, Transat's capacity is greater by 9% than that offered last winter. To date, 72% of that capacity has been sold, bookings are ahead by 9%, load factors are the same as at this time last year, and selling prices are lower by 0.5%. Higher fuel costs, combined with currency variations, will result in an increase in operating costs of 1.7% if fuel prices remain stable and the dollar remains at its current level against the U.S. dollar, the euro and the pound. Unit margins are currently lower by 4.4% than last year at this time.

With the winter of 2016 having been affected by several important events (worry over the Zika virus, the threat of strike action by pilots and terror attacks in Europe), the situation deteriorated as of the beginning of December. The Corporation forecasts that, if current trends continue, the results for the second quarter may show slight improvement over those of last year.

With regard to summer 2017, it is too soon to draw any conclusions. To date, 33% of seats have been sold. Compared with the summer of 2016, Transat's capacity on the transatlantic market is higher by 5.9%. Load factors are up by 0.2% and prices are down by 4.8%. The impact of increased fuel cost combined with currency fluctuation will not result in any increase of operating expenses if the cost of fuel and the dollar against the US dollar, the euro and the pound remain at their current levels. This may not be a trend that will continue in the future, but during the past weeks, the prices on the transatlantic market have improved continuously.

Additional information

The results were affected by non-operating items, as summarized in the following table:

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 first quarter of 2017, this translates into a $4.8 million non-cash gain ($3.5 million after income taxes), compared with a non-cash loss of $34.1 million ($25.0 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 first quarter of 2017, Transat recorded a loss of $5.7 million ($4.2 million after income taxes) on these foreign-currency hedging instruments, compared with a gain of $5.6 million ($4.1 million after income taxes) in 2016.

Summary of non-operating items – Before non-operating items, Transat posted an adjusted net loss³ of $36.0 million ($0.98 per share) for the first quarter of 2017 compared with $30.4 million ($0.82 per share) in 2016.

Transat A.T. Inc. is a major international integrated tourism company specialized 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 employs more than 5,000 people. Transat is a recognized Travelife Partner whose firm commitment to sustainable tourism development is reflected in its multiple corporate responsibility initiatives. For two years running, the company has made Corporate Knights research firm's annual list of the Best 50 Corporate Citizens in Canada.

NOTES

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

Conference call

First quarter 2017 conference call: Thursday, March 16, 2:30 p.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 21846661, until April 15, 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.