Supported by solid balance sheet,
2015-2017 strategic plan focuses on efficiency and market development

• Revenues of $788.6 million, compared with $847.2 million in 2014.
• Adjusted operating loss¹ of $35.8 million, compared with $23.9 million in 2014.
• Adjusted net loss³ of $32.4 million, compared with $23.3 million in 2014.
• Corporation announces intention to launch normal course issuer bid.

MONTREAL, March 12, 2015 /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 $788.6 million for the quarter ended January 31, 2015, compared with $847.2 million in 2014, a decrease of $58.6 million, or 6.9%. The Corporation recorded an adjusted operating loss¹ of $35.8 million, compared with $23.9 million in 2014; and a net loss attributable to shareholders of $64.3 million ($1.66 per share on a diluted basis), compared with $25.6 million ($0.67 per share on a diluted basis) in 2014. Before non-operating items, Transat reported an adjusted net loss³ of $32.4 million in 2015 ($0.84 per share), compared with $23.3 million ($0.60 per share) in 2014.

"On the Sun destinations market, higher selling prices, our cost-control initiatives and our currency-hedging program were not sufficient to offset the increase in our operating expenses, which was mainly caused by the significant, recent drop in the value of the Canadian dollar against the U.S. currency. That, combined with a deterioration in results in France and reduced revenues from aircraft subleasing, kept us from posting improved results for the quarter compared with last year," said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

The Corporation announced its intention to launch a normal-course issuer bid share buyback program, subject to approval from regulatory authorities.

2015–2017 strategic plan

"We are on the offensive," Mr. Eustache added, as Transat introduced its three-year 2015–2017 strategic plan today. The plan is aimed at continuing the Corporation's efforts to improve efficiency and margins as well as develop markets and foster growth, and comprises four key components.

A program to reduce costs and improve margins totalling $100 million over three years, specifically $45 million in 2015 (including the impact of narrow-body aircraft), $30 million in 2016 and $25 million in 2017. The main initiatives and projects are:

• Reduce air costs by decreasing the number of wide-body aircraft operated in winter, following the successful implementation of a flexible narrow-body aircraft fleet.
• Implement a connecting-flights strategy, starting next summer in Canada, using Air Transat's narrow-body aircraft to expand the destination offering in certain source markets. Implement a similar strategy in 2016 in Europe, with an air partner, paving the way for new destinations and source markets.
• Increase density of three wide-body Airbus A330s to be dedicated to the London and Paris routes.
• Increase ancillary revenues from the sale of optional services to travellers and from other sources such as freight.
• Continue technological upgrade projects of reservation systems, primarily to improve efficiency and reduce time-to-market of new products.

A program to improve the offering, focused on growth in existing source markets. The main efforts in this respect will be to:

• Introduce new destinations in Europe, starting with Budapest in summer 2015.
• Fine-tune the Sun destinations offering through exclusive partnerships with hotels and the continued improvement of collections, based on customer expectations.
• Continue to develop Lookea clubs in France, as well as the tour market.

A program to significantly transform the Corporation's distribution ecosystem in a fully integrated fashion. Concretely:

• Continue developing the Transat Travel brand, and in particular complete its implementation in the Corporation's own agencies.
• Develop a new distribution website as part of a strategy for transparently integrating the customer relations centres and travel agencies.

A program to develop markets and continue the integration strategy, with the aim of ensuring growth, namely to:

• Penetrate new source markets that can generate synergies with current operations, through acquisitions.
• Enhance presence in destinations as an incoming tour operator, particularly by leveraging Jonview Canada, Tourgreece and Trafic Tours.
• Develop and grow Ocean Hotels, increasing the number of rooms from the current 2,200 to potentially 5,000 over the duration of the plan.

First-quarter highlights

The Corporation posted revenues of $788.6 million, compared with $847.2 million in 2014, a decrease of $58.6 million, or 6.9%, and an adjusted operating loss¹ of $35.8 million, versus one of $23.9 million for the same period of 2014. During the quarter, the Corporation's capacity on the Sun destinations market was reduced by 6.5% from the previous year. The number of travellers on all of the markets served by the Corporation declined by 8.1%. On the Sun destinations market, the Corporation's higher selling prices, cost-control initiatives and currency-hedging program were not sufficient to offset the increase in operating expenses, mainly caused by the significant, recent drop in the value of the Canadian dollar against the U.S. currency. Those factors, combined with a decline in results in France and reduced revenues from aircraft subleasing, prevented the Corporation from posting improved results for the quarter compared with the same period of the previous year. Lastly, although crude oil prices declined substantially over the quarter, that decrease does not necessarily translate into lower costs for aircraft fuel, especially in certain destinations.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $43.3 million (6.0%) during the first quarter compared with the same period in 2014. The decrease stemmed from the decision to reduce product supply on the Sun destinations market by 6.5%, which in part explains the overall drop of 7.6% in the number of travellers, while  average selling prices were higher. During the quarter, the Corporation recorded an operating loss of $31.0 million, compared with one of $25.1 million for the same quarter last year. The higher operating loss was due mainly to the depreciation of the Canadian dollar versus the U.S. dollar, which, even in light of lower aircraft fuel prices, led to a $15 million increase in operating expenses. The higher selling prices and cost-control efforts were not sufficient to offset the impact of the increased operating expenses.

Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $15.3 million (12.3%), owing to a decrease in the number of travellers. Measured in local currencies, revenues from the European business units declined. This was due to decreased sales of travel products to North Africa and Senegal, which contributed to a drop of 12.4% in the number of travellers during the quarter, compared with 2014, while average selling prices were lower than for the same period last year. European operations resulting in an operating loss of $16.5 million for the quarter, compared with one of $8.6 million in 2014. The higher operating loss stemmed mainly from the lower number of travellers, increased operating expenses (attributable in part to the decline in value of the euro against the U.S. dollar) and lower average selling prices.

Financial position

As at January 31, 2015, the Corporation's free cash totalled $393.6 million, compared with $359.6 million at the same date in 2014. The increase was attributable to the past 12 months' earnings, the impact of exchange rates on the cash balances of European business units and to the agreements reached in 2014 with European credit card processors. The working-capital ratio was 1.05, against 1.07, and deposits from customers for future travel amounted to $636.3 million, versus $621.6 million a year earlier. Off-balance-sheet agreements, excluding contracts with service providers, stood at $718.1 million as at January 31, 2015, compared with $690.3 million as at October 31, 2014, the increase being attributable to the rise in value of the U.S. dollar against its Canadian counterpart, partially offset by payments made during the period.

Outlook

Second quarter – The Sun destinations market outbound from Canada accounts for a substantial portion of Transat's business during the winter season, and on that market, margins are particularly slim and volatile.

On the Sun destinations market, Transat's capacity is approximately 6% lower than that offered last year. To date, 75% of that capacity has been sold, load factors are similar and selling prices are up 1% compared with last year at the same date.

On the transatlantic market, currently in low season, Transat's capacity is 6% lower than that marketed last winter. To date, 74% of that capacity has been sold, and load factors and selling prices are similar.

In France, where winter corresponds to low season, bookings are lower by 8% and selling prices are similar compared to last year at this time.

The weakened Canadian dollar, net of the decline in fuel cost, will result in an increase in operating expenses of 2.2%, if the dollar and the cost of fuel remain at their current levels. The increase was 0.1% as of last December.

Given the significant, recent decline in the value of the Canadian currency, the Corporation believes that its second-quarter results may be lower than those posted for the same quarter last winter.

Summer 2015 – With regard to summer 2015, it is too soon to draw firm conclusions. To date, 32% of seats have been sold. When compared with the summer of 2014, which ranked as the Company's second best, capacity on the transatlantic market is down 2%. Load factors are higher by 2%, and prices are down by 3.5%, but operating expenses are expected to be lower by 3.8% if the dollar and the cost of fuel remain at their current levels.

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 2015, this translates into a $43.8 million non-cash loss ($31.9 million after income taxes), compared with a loss of $3.2 million ($2.4 million after income taxes) in 2014.

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 consolidated statement of financial position and consolidated statement of comprehensive income rather than in the consolidated statement of income. For the first quarter of 2015, Transat recorded a $57.6 million gain ($42.2 million after income taxes) on these foreign-currency hedging instruments, compared with a gain of $12.1 million ($8.9 million after income taxes) in 2014.

Summary of non-operational items – Before non-operating items, Transat posted an adjusted net loss³ of $32.4 million for the first quarter of 2015 ($0.84 per share) compared with one of $23.3 million in 2014 ($0.60 per share).

Presentation of the share in the net profit of an affiliate – The Corporation has modified the presentation of the share of net income (loss) of an associate to include it under operating results in the consolidated statements of loss. In the past, operating results did not consider the share of net income (loss) of an associate, i.e. CIBV, which owns and operates hotels in Mexico, the Dominican Republic and Cuba. However, hotel operations are part of the Corporation's activities. As a result, operating results more accurately reflect the Corporation's ongoing activities by including the share of net income (loss) of an associate. The retrospective application of this policy change had no impact on the Corporation's net loss.

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

Conference call

First quarter 2015 conference call: Thursday, March 12, 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 21761560, until April 11, 2015.

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 press 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, 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, 2014, 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.