For the third quarter:

• Revenues of $941.7 million, compared with $927.0 million in 2013.
• Adjusted operating income¹ of $46.8 million, compared with $54.4 million in 2013, a decrease of $7.6 million.
• Adjusted net income³ of $26.7 million, compared with $30.8 million in 2013.
• Net income of $25.8 million, compared with $41.1 million in 2013, a variance attributable in large part to the impact of fuel-hedging accounting during 2013.

For the nine-month period:

• Revenues of $2.9 billion, compared with $2.8 billion in 2013.
• Adjusted operating income¹ of $19.0 million, compared with $36.1 million in 2013, a decrease of $17.1 million despite the fact that the decline in value of the Canadian dollar alone resulted in an increase in operating expenses of $36.0 million during the winter season.
• Adjusted net loss³ of $4.1 million, compared with adjusted net income of $7.8 million in 2013.
• Net loss of $7.7 million, compared with net income of $3.2 million in 2013.

MONTREAL, Sept. 11, 2014 /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 $941.7 million for the quarter ended July 31, 2014, compared with $927.0 million in 2013, an increase of $14.7 million, or 1.6%. The Corporation recorded adjusted operating income¹ of $46.8 million, compared with $54.4 million in 2013, and net income of $25.8 million ($0.66 per share on a diluted basis), compared with $41.1 million ($1.07 per share on a diluted basis) in 2013. Before non-operating items, Transat reported adjusted net income³ of $26.7 million in 2014 ($0.69 per share on a diluted basis), compared with $30.8 million ($0.80 per share on a diluted basis) in 2013.

"In spite of the increase of more than 10% in the overall capacity on the transatlantic market, these are among the best third-quarter results we've ever posted," commented Jean-Marc Eustache, Transat's President and Chief Executive Officer, adding: "In the entire history of the company, we've done better on only two occasions, including last year, which was a record. So we're talking about a very satisfying start to the season."

Third-quarter highlights

The Corporation posted revenues of $941.7 million, compared with $927.0 million in 2013, an increase of $14.7 million, or 1.6%, and adjusted operating income¹ of $46.8 million, compared with $54.4 million for the same period of 2013. During the quarter, the number of travellers remained stable compared with the corresponding quarter last year. Average selling prices were up, and the euro and pound traded higher against the Canadian dollar. The lower adjusted operating income is attributable to the conditions on the transatlantic market, where the overall capacity was 10% greater compared with 2013.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $27.9 million (4.0%) compared with the same period in 2013. The decline in revenues stemmed from a decrease of 2.8% in the number of travellers, which was partially offset by the higher average selling prices. During the quarter, the Corporation reduced capacity on the transatlantic market by 2.1% and increased supply on its Sun destination routes by 8%. North American business units recorded operating income of $19.8 million, compared with $28.1 million in 2013. The decline in value of the Canadian dollar versus the U.S. dollar, the euro and the pound led to an increase in operating expenses, offset in part by the Corporation's efforts to increase efficiency, but the decrease in operating income is attributable above all to the impact of a substantial increase in capacity on the transatlantic market.

Compared with 2013, revenues of European business units, which are generated by sales in Europe and in Canada, increased by $42.6 million (17.8%), owing to the strength of the euro and pound against the Canadian dollar. Measured in local currencies, revenues in France were up, while revenues in the United Kingdom were down, following the Corporation's decision to reduce capacity. The number of travellers increased by 12.1% for the quarter compared with 2013, while average selling prices were slightly lower than in the same period in 2013. European operations generated operating income of $15.3 million, compared with $13.7 million in 2013.

Nine-month-period highlights

For the first nine months of 2014, the Corporation posted revenues of $2.9 billion, compared with $2.8 billion for the same period of 2013, and adjusted operating income¹ of $19.0 million, compared with $36.1 million in 2013. The increase in revenues stemmed from the higher average selling prices and the impact of currency conversion of revenues generated by the business units outside Canada (given the increase in value of the euro and pound against the Canadian dollar), partly offset by a decrease of 2% in the number of travellers. A significant portion of the Corporation's expenses is in U.S. dollars, euros and pounds. The increase in value of those currencies against the Canadian dollar led to increased operating expenses. The combined effect of increased selling prices plus efficiency gains was not sufficient to entirely offset the effects of those expense increases and of the increase in market capacity.

Financial situation

As at July 31, 2014, the Corporation's free cash totalled $497.1 million, compared with $389.3 million at the same date in 2013. The increase is attributable to the past 12 months earnings and the impact of exchange rates on the cash balances of European business units. It should also be noted that free cash will decrease in the fall, as we were on July 31 in the heart of the summer season and deposits from European customers, significantly higher in the summer, do not need to be entirely kept in trust. The increase also reflects new agreements with credit card processors in Europe. The working capital ratio was 1.06, as against 1.02, and deposits from customers for future travel amounted to $485.9 million, compared with $456.2 million as at July 31, 2013. Off-balance-sheet agreements stood at $583.9 million as at July 31, 2014, compared with $655.8 million as at October 31, 2013,⁴ the decrease being attributable to payments made during the period, offset by the increase resulting from the depreciation of the Canadian dollar against the U.S. dollar.

Outlook

The transatlantic market outbound from Canada and Europe accounts for a very significant portion of Transat's business in the summer. For the period August to October 2014, Transat's capacity on that market is similar to that for summer. To date, 86% of that capacity has been sold. Load factors are 1.5% lower and selling prices of bookings taken are 1.0% higher compared with the same date in 2013. The weak Canadian dollar, net of the variance in fuel costs, will result in an increase in operational expenses of 3.8% assuming that the dollar and the cost of fuel remain at their current levels.

On the Sun destinations market outbound from Canada, Transat's capacity is higher by 7% than that last year at this time. To date, 74% of that capacity has been sold, while load factors and selling prices are similar.

In France, compared with last year at the same date, medium-haul bookings are ahead by 21%, while long-haul bookings are at a similar level. Variations in the product mix have resulted in lower average selling prices, with no negative impact on the average margin.

To the extent the aforementioned trends hold, the Corporation expects to record satisfactory results in the fourth quarter, though lower than the record results posted last year.

Cost-reduction and margin-improvement initiatives

The Corporation is continuing to implement its initiatives to reduce operating costs, improve margins, and make changes to its systems and processes, including internalization at Air Transat of a flexible fleet of narrow-body aircraft. These measures had, as expected, a favourable impact of $20 million on the margin in 2012 and one of $15 million in 2013. The Corporation expects to generate another $20 million in 2014, as well as in 2015, when internalization of the narrow-body fleet will produce its full benefits. At the same time, the Corporation is continuing to develop its 2015–2017 strategic plan.

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 second quarter of 2014, this translates into a $1.2 million non-cash loss ($0.9 million after income taxes), compared with a gain of $15.4 million ($11.3 million after income taxes) in 2013. For the nine-month period, this represents a non-cash loss of $2.7 million ($2.0 million after income taxes), compared with one of $1.0 million ($0.7 million after income taxes) in 2013.

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 third quarter of 2014, Transat recorded a $0.2 million loss ($0.1 million after income taxes) on these foreign-currency hedging instruments, compared with a $1.6 million gain ($1.2 million after income taxes) for the corresponding quarter in 2013. For the nine-month period, Transat records a loss of $7.2 million ($5.3 million after income taxes) on these foreign-currency hedging instruments, compared with a $2.2 million gain ($1.7 million after income taxes) in 2013.

Summary of non-operating items – Before non-operating items, Transat posted adjusted net income³ of $26.7 million ($0.69 per share on a diluted basis) for the third quarter of 2014, compared with $30.8 million ($0.80 per share on a diluted basis) in 2013. For the nine-month period, the Corporation is recording an adjusted net loss of $4.1 million ($0.11 per share on a diluted basis), compared with adjusted net income of $7.8 million ($0.20 per share on a diluted basis) in the first nine months of 2013.

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.

(1) Adjusted operating income (loss): Operating income (operating loss) before depreciation and amortization expense, restructuring charge and other significant unusual items.

(2) Adjusted after-tax 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 gains (or charges).

(3) Adjusted net income (loss): Net income (loss) attributable to shareholders before impact of fuel hedge accounting, ABCP revaluation, gain on disposal of a subsidiary, goodwill impairment and restructuring gains (or charges), net of applicable income taxes.

(4) The off-balance-sheet agreements amount as at October 31, 2013, as reported in the news release for the fiscal year ended October 31, 2013, included commitments under agreements with air suppliers in the amount of $112.5 million. That amount should have been excluded from the off-balance-sheet agreements.

Conference call

Third quarter 2014 conference call: Thursday, September 11, 2014, 10:00 a.m. Dial 1-800-893-3796. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 997-6910, access 21732199, until October 11, 2014.

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, 2013, 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.