Provided by Transat A.T. Inc./CNW
mproved first quarter but outlook overshadowed by COVID-19
Acquisition of the Corporation is pending regulatory approvals
For the first quarter:
- Revenues of $692.8 million.
- Adjusted operating income1 of $27.4 million (operating loss of $25.1 million).
- Adjusted net loss3 of $20.3 million (net loss attributable to shareholders of $33.8 million).
Transaction with Air Canada:
- Transaction expected to close by the second quarter of the 2020 calendar year if the required regulatory approvals are obtained and conditions are met.
- Approval process underway in the jurisdictions concerned, particularly in Canada and Europe.
MONTRÉAL, March 12, 2020 /CNW Telbec/ – Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, announces its results for the first quarter ended January 31, 2020.
“We’re satisfied with the improvement in results for the first quarter, even though the coronavirus epidemic makes the rest of the year difficult to predict,” stated Jean-Marc Eustache, President and Chief Executive Officer of Transat. “But Transat has already faced several epidemiological threats in the past, including SARS and H1N1, and I firmly believe that the resilience of our teams and our solid balance sheet will enable us to deal with risks and difficulties once again. We’re taking all the necessary measures to allow our clients to travel with peace of mind.”
First-quarter highlights
The Corporation posted revenues of $692.8 million for the quarter, up $45.2 million (7.0%) compared with 2019. This increase was attributable to the 10.8% increase in the number of travellers in the sun destinations program, the Corporation’s main program for the winter season, resulting from the decision to increase capacity.
Operations generated an operating loss of $25.1 million, compared with $48.6 million in 2019, an improvement of $23.6 million. This improvement resulted mainly from the higher profitability of the sun destinations program. Transat reported adjusted operating income1 of $27.4 million compared with an adjusted operating loss1 of $7.6 million in 2019, an improvement of $34.9 million.
Net loss attributable to shareholders amounted to $33.8 million or $0.90 per share (basic and diluted) compared with $53.0 million or $1.41 per share (basic and diluted) in 2019. Excluding non-operating items, Transat reported an adjusted net loss3 of $20.3 million ($0.54 per share) for the first quarter of 2020, compared with $39.2 million ($1.04 per share) in 2019.
Financial position
As at January 31, 2020, cash and cash equivalents amounted to $682.2 million, compared with $620.4 million on the same date in 2019. This change was mainly attributable to positive cash flows generated by operations, partially offset by the acquisition of two replacement engines for the A321neoLR fleet ($33.4 million) and the costs related to the transaction with Air Canada ($11.5 million).
The working capital ratio was 1.04, compared with 1.14 as at January 31, 2019. This change was mainly attributable to the acquisition of two replacement engines for the A321neoLR fleet and the increase in the current portion of lease liabilities.
Deposits from customers for future travel amounted to $809.1 million, compared with $752.8 million as at January 31, 2019, an increase of $56.2 million.
Following the adoption of the IFRS 16 accounting standard, leases with a term of more than 12 months are now recorded on the balance sheet as right of use assets and as lease liabilities. As at January 31, 2020, lease liabilities amounted to $689.6 million.
Off-balance-sheet agreements, excluding contracts with service providers, stood at $1.3 billion as at January 31, 2020. This amount was mainly composed of commitments to take delivery of the 15 A321neos undelivered as at January 31, 2020.
IFRS update
The Corporation adopted IFRS 16, Leases, on November 1, 2019. The 2019 comparative figures have been restated to reflect these changes.
To sum up, the adoption of this standard resulted in increases of $748.4 million in assets, $716.9 million in liabilities and $22.7 million in equity, respectively, as at October 31, 2019. For the year ended October 31, 2019, the adoption of this standard resulted in an increase in net income attributable to shareholders of $0.8 million. The main changes related to the adoption of IFRS 16 are described in note 3 to the interim condensed consolidated financial statements for the quarter ended January 31, 2020.
Outlook
Status of second quarter bookings
To date, in the sun destinations market, the Corporation’s main market for the period, Transat’s capacity is higher than the previous year by 5%. 83% of this capacity has been sold and load factors are 1.7% lower than those of 2019. The impact of fluctuations in the Canadian dollar, combined with lower fuel costs, will result in a 0.3% decrease in operating expenses if the Canadian dollar relative to the U.S. dollar and fuel prices remain stable. Unit margins are currently higher by 0.8% compared with the same date last year.
To date, in the transatlantic market, where it is low season, load factors are lower by 1.6% compared to last winter. Prices are comparable to those at the same date last year.
Status of summer bookings
To date, in the transatlantic market, the Corporation’s main market during the summer, Transat’s capacity is up 3% compared with 2019. Currently, 34% of seats have been sold. Load factors are 1.7% lower and selling prices are down 5.7% compared with the same date last year. Fuel costs, net of fluctuations in the Canadian dollar against the U.S. dollar, the euro and the pound, have triggered a 4.0% decrease in operating expenses to date.
Impact of the coronavirus on outlook
Since February 24, daily bookings are lower than last year’s and the difference has increased significantly in recent days. In the current situation, it is impossible to predict the effect on future bookings.
The Corporation has implemented a series of operational, commercial and financial measures, including cost reduction, aimed both at ensuring the security and peace of mind of its customers and at preserving its cash flow. The Corporation monitors the situation day by day in order to adjust these measures according to its development.
Consequently, the Corporation will not provide an outlook for the second quarter or for the summer.
Discussions relating to the sale of the Corporation
On August 23, 2019, Transat’s shareholders approved the arrangement agreement with Air Canada, under which it is provided that Air Canada will acquire all issued and outstanding shares of Transat for a cash consideration of $18 per share [the “arrangement”]. The arrangement remains subject to certain customary closing conditions, including regulatory approvals, particularly authorities in Canada and the European Union. Notably, a public interest assessment regarding the arrangement is currently underway by Transport Canada. As part of this assessment process, the Commissioner of Competition will provide Transport Canada with its assessment of the impacts on competition. If the required regulatory approvals are obtained and conditions are met, it is expected that the arrangement will close by the second quarter of the 2020 calendar year.
The management information circular dated July 19, 2019 contains additional information regarding the arrangement.
The Corporation has agreed to limit its undertakings and expenses related to the execution of its hotel strategy in the period leading up to the closing of the transaction with Air Canada.