Transat A.T. Inc. - Results for Second Quarter 2013 - Significant improvement in winter results, return to profitability expected this year

For the second quarter:

Revenues of $1.1 billion, compared with $1.2 billion in 2012.
$28.9 million improvement in margin ($2.7 million before amortization and depreciation1 and before restructuring charges, compared with an operating loss of $26.2 million in 2012).
Net loss of $22.8 million, compared with $13.2 million in 2012.
Adjusted after-tax loss of $1.4 million, compared with $24.5 million in 2012.
For the six-month period:

Revenues of $1.9 billion, compared with $2.0 billion in 2012.
$39.7 million improvement in margin (operating loss before amortization and depreciation1 and before restructuring charges of $18.3 million, compared with an operating loss of $58.0 million in 2012).
Net loss of $37.9 million, compared with $42.7 million in 2012.
Adjusted after-tax loss of $23.0 million, compared with $54.5 million in 2012.

MONTREAL, June 13, 2013 /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 $1.1 billion for the quarter ended April 30, 2013, compared with $1.2 billion in 2012, a decrease of $105.6 million, or 8.7%. The Corporation recorded an operating loss before amortization and depreciation1 of $1.2 million, compared with $26.2 million in 2012 and a net loss of $22.8 million ($0.59 per share on a diluted basis), compared with $13.2 million ($0.35 per share on a diluted basis) in 2012. Before non-operating items, amortization and depreciation, and restructuring charges, Transat reported a margin of $2.7 million, compared with an operating loss3 before amortization and depreciation of $26.2 million; and an adjusted after-tax loss of $1.4 million ($0.04 per share on a diluted basis) in 2013, compared with $24.5 million ($0.64 per share on a diluted basis) in 2012.

For the quarter, the net loss includes a non-realized charge (excluding taxes) of $18.5 million that stems from the mark-to-market accounting of fuel-hedging contracts, compared with a favourable variance of $3.1 million in 2012 (see Hedging section).

“We reached our cost-reduction targets, and despite a challenging winter selling prices were higher than last year, hence the improvement in our results. The summer is looking fairly good and we expect to be back to profitability this year,” said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

Second quarter highlights

The Corporation posted revenues of $1.1 billion, compared with $1.2 billion in 2012, and an operating loss before amortization and depreciation1 of $1.2 million (margin of $2.7 million before amortization and depreciation, and restructuring charges), compared with $26.2 million in 2012 ($26.2 million before restructuring charges). The decrease in revenues is mainly attributable to the Corporation’s decision to reduce capacity on its markets (Sun, transatlantic and France), hence a 13.7% reduction in the number of travellers. Across all markets, selling prices and margins were higher than in 2012.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $82.6 million (8.0%) compared with the same period in 2012. For the quarter, the capacity on Sun destinations was down 14% compared with 2012. Capacity on the transatlantic market was down 24%. North American business units recorded an operating loss before amortization and depreciation of $0.6 million, compared with $19.6 million in 2012. Before restructuring charges, Transat posted a margin before amortization and depreciation of $4.5 million, compared with an operating loss before amortization and depreciation of $19.6 million in 2012. The improvement in margin is mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

Revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $23.0 million (12.4%) over 2012, mainly due to the Corporation’s decision to reduce capacity. European operations generated an operating loss before amortization and depreciation of $1.8 million, compared with $6.6 million the previous year, with the variance mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

First six-month period highlights

For the first six months of 2013, the Corporation posted revenues of $1.9 billion, compared with $2.0 billion in 2012, and an operating loss before amortization and depreciation1 of $22.2 million ($18.3 million before amortization and depreciation, and restructuring charges), compared with $58.1 million in 2012 ($58.1 million before restructuring charges). The decrease in revenues is mainly attributable to the Corporation’s decision to reduce capacity on its markets (Sun, transatlantic and France), hence a 12.0% reduction in the number of travellers. Across all markets, selling prices and margins were higher than in 2012.

Revenues of North American business units, which are generated by sales in Canada and abroad, decreased by $92.7 million (5.4%) compared with the same period in 2012. For the six-month period, the capacity on Sun destinations was down 13% compared with 2012. Capacity on the transatlantic market was down 21%. North American business units recorded an operating loss before amortization and depreciation of $7.7 million, compared with $38.7 million in 2012. Before restructuring charges, Transat posted a margin before amortization and depreciation of $3.8 million, compared with an operating loss before amortization and depreciation of $38.7 million in 2012. The improvement in margin is mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

Revenues of European business units, which are generated by sales in Europe and in Canada, decreased by $36.5 million (11.6%) from 2012, mainly due to the Corporation’s decision to reduce capacity. European operations generated an operating loss before amortization and depreciation of $14.5 million, compared with $19.3 million the previous year, with the variance mainly attributable to higher selling prices during the quarter, as well as cost-reduction initiatives.

Financial situation

As at April 30, 2013, cash stood at $336.1 million, compared with $264.1 million at the same date the previous year; working capital ratio was 0.98 against 0.93 and deposits from customers for future travel were $514.7 million compared with $479.7 million. Off-balance-sheet agreements stood at $509.0 million as at April 30, 2013, compared with $595.8 million at the same date in 2012, the decrease being attributable to payments made during the 12-month period.

Outlook for the summer

The transatlantic market, outbound from Canada and Europe, accounts for a very significant portion of Transat’s business in the summer. From May to October 2013, Transat’s capacity on that market is 12% lower than that for the previous year. To date, 66% of that capacity has been sold, load factors are 2% lower and selling prices are approximately 5% higher compared to 2012.

On the Sun destinations market, outbound from Canada, Transat’s capacity is lower by 3% than that for the previous year. To date, 46% of that capacity has been sold, load factors and selling prices are similar.

In France, compared with 2012, medium-haul bookings are slightly ahead, and long-haul bookings are slightly behind. Selling prices are slightly higher.

To the extent the aforementioned trends hold, Transat expects to record better results than last year for the second half, and an after-tax adjusted income for the year.

Cost-reduction and margin-improvement Initiatives

The implementation of the Corporation’s plan to return to profitability is proceeding as expected, including measures to reduce operating costs and changes to its systems and processes. In April 2013, the Corporation also announced its decision to internalize narrow-body medium-haul aircraft (Boeing 737-800s) for its Sun destination routes outbound from Canada, starting in May 2014. The various measures (cost-reduction initiatives, additional revenues and efficiency gains) had a favourable impact of $20 million on the margin in 2012. The Corporation similarly expects a favourable contribution of $15 million in 2013, of $20 million in 2014 and of an additional $20 million in 2015, when internalization of the narrow-body fleet will produce its full benefits.