Transat A.T. Inc. – Results for first quarter 2011

Montreal, March 10, 2011

Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, posted revenues of $810.2 million for the quarter ended January 31, 2011, compared with $792.6 million in 2010, an increase of $17.6 million, or 2.0%. The Corporation recorded an operating loss1 of $14.6 million, compared with $12.4 million in 2010, and a net loss of $13.5 million ($0.36 per share on a diluted basis), compared with $13.9 million ($0.37 per share on a diluted basis) in 2010. Before non-cash and non-operating items, Transat reported adjusted after-tax loss3 of $19.4 million ($0.51 per share on a diluted basis), compared with $18.2 million ($0.48 per share on a diluted basis) in 2010.

“It was a difficult quarter, mainly because of ongoing intense competition in the sun destinations market, which consumers are taking advantage of,” said President and Chief Executive Officer Jean-Marc Eustache.

First quarter highlights

The Corporation’s first-quarter revenues increased by $17.6 million. This increase is mainly attributable to more travellers to sun destinations. The increase in revenues was offset in part by the strength of the Canadian dollar against the euro and pound sterling, which caused a decrease in the revenues of foreign business units when expressed in Canadian dollars. For the quarter, Transat recorded a 2.9% revenue increase in North America, and a 0.9% decrease in Europe.

The Corporation recorded an operating loss of $14.6 million, compared with $12.4 million in 2010, as increased supply by tour operators on sun destinations translated into downward pressure on selling prices, especially when nearing departure dates. The decrease in margin is also attributable to higher fuel and hotel costs, offset in part by the strength of the Canadian dollar and better aircraft utilization.

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $18.8 million (2.9%) compared with the same period in 2010. The increase is attributable to a 1.8% increase in the number of travellers. North American business units recorded an operating loss of 0.9%, compared with 0.6% in 2010. The increase is attributable mainly to the combination of higher capacity and lower selling prices for sun packages.

Revenues of European business units, which are generated by sales made in Europe and in Canada, increased in local currencies but decreased by $1.2 million (0.9%) over 2010. The favourable impact from higher average selling prices was offset by the weaker euro and pound sterling, as well as, to a lesser extent, by the unrest in North Africa. In the United Kingdom, Canadian Affair managed to increase both traveller numbers and average selling prices (including in Canadian dollars). European operations generated an operating loss of $8.6 million (6.4%) for the quarter, compared with $8.5 million (6.2%) in 2010.

Financial position

The Corporation’s free cash totalled $199.0 million as at January 31, 2011, compared with $147.7 million as at January 31, 2010. Total balance sheet debt decreased by $92.5 million during the 12-month period, to $13.8 million. The net cash4 position improved by $143.7 million, from a net cash position of $41.5 million as at January 31, 2010 to $185.2 million as at January 31, 2011. Most of the improvement over the past year is due to the operating profit and better working capital management.

Off-balance-sheet agreements stood at $606.0 million as at January 31, 2011, compared with $370.0 million as at January 31, 2010, reflecting new leases for additional Airbus A330s to be introduced in Air Transat’s fleet.
Cash flows from operating activities increased by $68.8 million, from cash used by operations of $21.3 million in 2010, to cash flows generated by operations of $47.6 million in 2011. The increase stems mainly from improved working capital management during the winter.

Outlook

The Canadian sun destinations market accounts for a very significant portion of Transat’s business in the winter. For the second quarter 2011, the Corporation’s capacity is approximately 9% higher than the actual capacity offered last year; bookings and load factors are superior to last year at the same date; and selling prices are similar.

In France, bookings are slightly higher than last year, after having lost momentum following the events in North Africa.

Transat expects the results of the second quarter to be similar to last year, as the favourable impact stemming from a strong Canadian dollar will be offset by higher aircraft fuel costs.

On the summer transatlantic market, capacity and bookings are 10% higher than last year; load factors and selling prices are similar.

There is currently significant uncertainty surrounding oil prices and the upward pressure that this will have on the Corporation’s costs for the summer season. Transat has introduced additional fuel surcharges, and continues to use hedging instruments, in order to manage this risk.