Labour and engine woes push Transat to a loss as travel company curtails expansion

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MONTREAL — Transat A.T. Inc. felt the headwinds of stiff competition, engine recalls and the threat of a union strike last quarter, which together conspired to drain more money from the struggling tour operator.

Transat nearly doubled its losses to $54.4 million in the three months ended April 30 compared with the same period a year earlier. More cash departed its coffers despite a 12 per cent year-over-year boost in revenue, fuelled by an increase in passengers.

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“It is clear that this year is a challenging one for Transat,” chief executive Annick Guerard said on a conference call with analysts Thursday.

“Canadians continue to feel the negative impacts of high inflation and high interest rates on their budget. We even see some postponing their spending,” she said.

“The demand is there, but it’s not at a growth rate that is as strong as last year.”

The losses stemmed partly from lower per-passenger revenue, as Transat’s seat capacity grew more than its ridership.

They also resulted from “intensified competition” on routes to sun destinations and the drawn-out possibility of a work stoppage, the Montreal-based company said.

The airline’s 2,100 flight attendants voted 99 per cent in favour of a strike mandate in November and twice rejected tentative deals before approving a new collective agreement in late February.

Guerard said in March that bookings fell after the right-to-strike vote and the two deal rejections, and shot up again following each announcement of a tentative agreement — “so overall a clear correlation.”

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Air Transat is also among the carriers facing serious knock-on effects from the recall of Pratt & Whitney turbofan jet engines for inspection and repair.

The cost of temporary plane leases prompted by those engine issues put further pressure on profit margins, Transat said. Meanwhile, it dealt with late deliveries for Airbus A321 narrow-bodies, an energy-efficient aircraft whose absence cost the company fuel and customers.

“We had to cut some routes,” Guerard said Thursday.

Last year, Pratt & Whitney parent RTX Corp. said it would recall about 3,000 engines because of a risk of cracking. Air Transat has grounded at least four jetliners as a result and leased several Airbus A330 wide-body aircraft to compensate — but the planes don’t come cheap. Lease prices have surged due to curtailed production at Boeing Co. following the midflight blowout of a side panel on a 737 Max 9 in January.

Nonetheless, the arrival of the last of seven Airbus aircraft this summer — the four long-range A321s from a previous order, plus the three A330s being converted to long-term leases — would help fill the gap left by the grounded planes.

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Transat also launched on Wednesday the first phase of its joint venture with Porter Airlines that Guerard hopes will yield benefits via access to its partner’s rapidly growing network in Canada and the United States.

The partnership allows the carriers to co-ordinate pricing and schedules along with revenue sharing, and builds on a year-old code-share agreement that enables airlines to sell one another’s flights to their own customers. While “optimistic” about the deal, Guerard told analysts on a conference call Thursday the deal will only yield incremental bookings for the time being.

Amid market pressures and fewer available planes, Transat said it would curb capacity growth to 11 per cent this year versus previous projections of 13 per cent, which in turn marked a cut from more ambitious expansion plans.

Transat A.T. Inc. reported second-quarter revenue of $973.2 million, up from $870.1 million in the same quarter last year.

On an adjusted basis, the travel company said it lost $1.02 per share in its latest quarter compared with an adjusted loss of 21 cents per share a year earlier. The result fell short of analysts’ expectations of adjusted losses amounting to 81 cents per share, according to LSEG Data & Analytics.

Transat’s total net debt stood at a hefty $1.41 billion as of April 30, versus $1.62 billion six months earlier.

This report by The Canadian Press was first published June 6, 2024.

Companies in this story: (TSX:TRZ)

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