Low dollar, Zika virus and threat of strike action mask effects of improvement initiatives;
challenging winter on Sun destinations market

• Revenues of $846.9 million, compared with $788.6 million in 2015.
• Net increase in costs of Sun packages of $24 million due to the weakened Canadian dollar.
• Adjusted operating loss¹ of $40.6 million, compared with $35.8 million in 2015.
• Adjusted net loss³ of $37.3 million, compared with $32.4 million in 2015.
• Net loss attributable to shareholders of $61.2 million, compared with $64.3 million in 2015.

MONTREAL, March 10, 2016 /CNW Telbec/ - Transat A.T. Inc., one of the world's largest integrated tourism companies in the world and Canada's holiday travel leader, posted revenues of $846.9 million for the quarter ended January 31, 2016, compared with $788.6 million in 2015, an increase of $58.3 million, or 7.4%. The Corporation recorded an adjusted operating loss¹ of $40.6 million, versus $35.8 million in 2015, and a net loss attributable to shareholders of $61.2 million ($1.64 basic and diluted earnings per share), against $64.3 million ($1.66 basic and diluted earnings per share) in 2015. Before non-operating items, Transat reported an adjusted net loss³ of $37.3 million ($1.00 per share) for the first quarter of 2016, compared with one of $32.4 million ($0.84 per share) in 2015.

"Our organization is significantly more efficient, but the effects of our initiatives have been masked by the drop in value of the Canadian dollar," said Jean-Marc Eustache, President and Chief Executive Officer of Transat. "During the first quarter, the net increase in the cost of packaging all-inclusive Sun destinations vacations was $24 million, and was only partly absorbed by consumers. The dollar, the Zika virus, the possibility of strike action by our pilots, which has now been averted, an economic slowdown and fairly mild weather conditions are all factors that make the current winter season challenging."

First-quarter highlights

The Corporation posted revenues of $846.9 million, compared with $788.6 million in 2015. The increase of $58.3 million (7.4%) stems primarily from an overall increase of 8.7% in the number of travellers and higher average selling prices for Sun destinations, Transat's main market segment for the period. During the quarter, the Corporation's capacity on Sun destinations routes was 9.6% higher than that marketed in 2015. The Corporation posted an adjusted operating loss¹ of $40.6 million, versus one of $35.8 million for the same period in 2015.

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $42.4 million (6.2%) compared with the same period in 2015. The increase was due mainly to the Corporation's decision to increase product supply by 9.6% on the Sun destinations market and by 18.8% on the transatlantic market, which contributed to a 10.7% increase in the number of travellers on all markets combined.

Average selling prices for Sun packages were higher than those in 2015, while those on the transatlantic market were lower, as a result of the decline in fuel prices, a significant component in the cost of this type of product. During the quarter, the Corporation posted an operating loss of $37.6 million (5.2%), compared with one of $31.0 million (4.6%) in 2015. During the quarter, the decline in value of the Canadian dollar against the U.S. currency, net of the decrease in fuel costs, resulted in an increase in operating costs of $24 million on Sun destinations routes, two-thirds of which was offset by the higher average selling prices.

Compared with 2015, revenues of European business units, which are generated by sales in Europe and in Canada, increased by $15.9 million (14.5%), owing to higher average selling prices and the increase in value of the euro against the dollar, offset in part by the transfer of some European sales to Canada, following the introduction of a new booking platform in 2015, which contributed to a drop of 9.7% in the number of travellers for the quarter. Measured in local currencies, revenues from the European business units increased. European operations resulted in an operating loss of $12.9 million (10.3%) for the quarter, compared with one of $16.5 million (15.0%) in 2015. The Corporation's reduced operating loss stems from improved results in France.

Financial position

As at January 31, 2016, the Corporation's free cash totalled $431.4 million, compared with $393.6 million at the same date in 2015. The increase was attributable to the past 12 months' earnings, partially offset by the shares repurchased as part of the normal course issuer bid launched in April 2015. The working-capital ratio was 1.01, against 1.05, and deposits from customers for future travel amounted to $658.2 million, versus $636.3 million a year earlier. Off-balance-sheet agreements, excluding contracts with service providers, stood at $709.6 million as at January 31, 2016, compared with $713.7 million as at October 31, 2015.

The normal course issuer bid began on April 15, 2015. During the quarter ended January 31, 2016, the Corporation repurchased 692,400 shares, for a cash consideration of $4.9 million. As at March 4, 2016, the Corporation had completed its normal course issuer bid program and repurchased a total of 2,274,921 shares since the start of the bid, the full authorized number, for a cash consideration of $16.5 million.

Outlook

Second quarter – On the Sun destinations market outbound from Canada, the Corporation's principal market segment during the winter season, Transat's capacity for the second quarter is 1% higher than that marketed last year. To date, 77% of that capacity has been sold, and load factors are 1.7% higher. The impact of the weakened Canadian dollar, net of the decline in fuel cost, will result in an increase in operating expenses of 5.1%, if the dollar and the cost of fuel remain at their current levels. Margins are currently lower by 2.4% than last year at this time.

On the transatlantic market, currently in low season, Transat's capacity is 18% greater than that offered last winter. To date, 72% of that capacity has been sold, load factors are 1.2% lower, and selling prices are lower by 4.7%. The impact of lower fuel cost will translate to a decrease in operating expenses of 7.4% if fuel cost remains at its current level.

In France, where winter is low season, bookings are higher by 10% and selling prices are higher by 2% compared with last year at this time.

Given the recent sharp decline in the value of the Canadian currency, consumer fears about the Zika virus, and the risk of strike action by Air Transat pilots, now averted, the Corporation believes that its second-quarter results may be lower than those posted for the same quarter last winter.

Summer 2016 – It is too soon to draw firm conclusions about summer 2016. To date, 30% of seats have been sold. When compared with the summer of 2015, which ranked as the second-best in the Corporation's history, Transat's capacity on the transatlantic market is higher by 8%. Load factors are lower by 2.2% and prices are down by 2.5%, but operating expenses are expected to decrease by 4.6% if the dollar and the cost of fuel remain at their current levels.

Call for expressions of interest in purchasing tour-operating business units in France and Greece

On January 12, 2016, the Corporation announced that it had initiated a process by which it is seeking indications of interest from third parties that could lead to the sale of certain of its assets outside Canada, namely its tour-operating business units in France and Greece. At this time, although the process is moving ahead and several parties have expressed interest, no negotiations have yet been entered into, and no assurance can be given that any transaction will be completed.

Should such a transaction take place, it will have no impact on the transatlantic program or Air Transat operations and growth in France or elsewhere in Europe, since the Corporation's tour-operating and aviation lines of business are separate. Transat is maintaining its growth objectives as a leisure carrier between Europe and Canada.

This project stems from Transat's 2015–2017 strategic plan, which emphasizes profitable growth in the Americas, through the development of the Corporation's tour-operating, distribution and hotel businesses.

Cost-reduction and margin-improvement initiatives

As set forth in the plan announced in conjunction with the disclosure of its first-quarter 2015 results, the Corporation is continuing its cost-reduction and margin-improvement initiatives, which target savings of at least $100 million over three years. The main initiatives that contributed to reaching the objective of $45 million in 2015 were Air Transat's insourcing of narrow-body aircraft and implementation of a flexible fleet. In 2016, the Corporation expects to save at least $30 million through improvements, chiefly by continuing to apply the cost-reduction program at Air Transat, optimizing hotel costs, and increasing ancillary revenues. The Corporation's target for 2017 is at least $25 million.

Additional information

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

Highlights and impact of non-operating items on results
(in thousands of CAD)

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 2016, this translates into a non-cash loss of $35.5 million ($25.9 million after income taxes), compared with one of $43.8 million ($31.9 million after income taxes) in 2015.

The Corporation uses derivative financial 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 the effective portion of these instruments which are designated as hedging 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 2016, Transat recorded a $5.8 million gain ($4.3 million after income taxes) on these foreign-currency hedging instruments, compared with $57.6 million ($42.2 million after income taxes) in 2015.

Summary of non-operating items – Before non-operating items, Transat posted an adjusted net loss³ of $37.3 million for the first quarter of 2016 ($1.00 per share), compared with one of $32.4 million in 2015 ($0.84 per action).

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.

Conference call

First-quarter 2015 conference call: Thursday, March 10, 2016, 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 21806234, until April 9, 2016.

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 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, 2015, 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.

(www.transat.com)

SOURCE Transat A.T. Inc.