Transat A.T. Inc. - Results for Second Quarter of 2018

Improved results for the winter season

For the second quarter:

• Revenues of $902.0 million ($884.3 million in 2017).
• Operating loss of $8.7 million ($15.1 million).
• Adjusted operating income¹ of $6.6 million ($1.5 million).
• Net income attributable to shareholders of $6.7 million (net loss attributable to shareholders of $8.4 million)
• Adjusted net loss³ of $4.5 million ($8.1 million).

For the first six months:

• Revenues of $1.6 billion ($1.6 billion in 2017)
• Operating loss of $54.5 million ($65.7 million).
• Adjusted operating loss¹ of $24.5 million ($35.6 million).
• Net income attributable to shareholders of $0.1 million (net loss attributable to shareholders of $40.4 million)
• Adjusted net loss³ of $38.4 million ($44.1 million).
• Sale of the subsidiary Jonview Canada Inc. for $48.9 million on November 30, 2017.

MONTRÉAL, June 14, 2018 /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 second quarter ended April 30, 2018.

"On a comparable basis versus last year, our adjusted operating income¹ improved by $7.8 million for the quarter and $16.7 million for the winter season, despite the impact of hurricanes. We're satisfied with the improvement in our results, particularly in our sun destination market, while the transformation of our fleet will only take effect starting in summer 2019," stated Jean-Marc Eustache, President and Chief Executive Officer, Transat.

"Our hotel project is also moving forward satisfactorily. We've identified the first opportunities and we're setting up the structures of our division."

Second Quarter Highlights

The Corporation posted revenues of $902.0 million, compared with $884.3 million in 2017, an increase of $17.7 million or 2.0%. The increase was driven by a 4.8% rise in the number of travellers in the sun destination market, the Corporation's main market for the period, and of 10.7% in the transatlantic market. In addition, average selling prices were slightly higher in the transatlantic market and remained relatively unchanged in the sun destinations market. The increase in revenues was partially offset by the sale of the Jonview subsidiary and by the achievement of the Corporation's objective for flight-only sales compared to 2017.

Operations generated an adjusted operating income¹ of $6.6 million compared with $1.5 million in 2017. This $5.1 million improvement was primarily due to an increase in the number of travellers, combined with slightly higher average selling prices in the transatlantic market, as well as the favourable foreign exchange effect (net of an increase in fuel prices) which reduced the operating expenses by $17.1 million. The improvement in adjusted operating income¹ was partially offset by lower load factors across all markets.

On a comparable basis, excluding the businesses sold recently (Ocean Hotels and Jonview), the adjusted operating income¹ improved by $7.8 million compared with the previous year.

Net income attributable to shareholders amounted to $6.7 million or $0.18 per share (basic and diluted) compared with a net loss of $8.4 million or $0.23 per share (basic and diluted) in 2017. Excluding non-operating items, Transat reported an adjusted net loss³ of $4.5 million ($0.12 per share) for the second quarter of 2018, compared with $8.1 million ($0.22 per share) in 2017.

Six-month Period Highlights

The Corporation recognized revenues of $1.6 billion, up $54.1 million or 3.4% from 2017. For the six-month period, the increase was mainly driven by a 5.4% rise in the number of travellers in the sun destination market, the Corporation's main market for the period, accentuated by a 14.8% increase in the number of travellers in the transatlantic market. In addition, average selling prices have slightly increased across all markets. Higher revenues were partially offset by the sale of the Jonview subsidiary and by the achievement of the Corporation's objective for flight-only sales compared to 2017.

For the winter season, operations generated an adjusted operating loss¹ of $24.5 million compared with $35.6 million in 2017, an improvement of $11.1 million. The decrease in adjusted operating loss¹ was primarily due to an increase in the number of travellers, combined with slightly higher average selling prices across all markets, as well as the favourable foreign exchange effect (net of the increase in fuel prices), which reduced operating expenses by $30.4 million. The decrease in adjusted operating loss¹ was partially offset by lower load factors across all markets.

On a comparable basis, excluding the businesses sold recently (Ocean Hotels and Jonview), the adjusted operating loss¹ decreased by $16.7 million compared with the previous year.

Net income attributable to shareholders was $0.1 million or $0.00 per share (basic and diluted), compared with a net loss of $40.4 million or $1.10 per share (basic and diluted) for the corresponding period of the previous year. Excluding non-operating items, Transat reported an adjusted net loss³ of $38.4 million ($1.02 per share) for the first six months of 2018, compared with $44.1 million ($1.20 per share) in 2017.

Sale of Jonview Canada Inc.

On November 30, 2017, the Corporation completed the sale of its subsidiary Jonview, which has an incoming tour operator business in Canada, to Japanese multinational H.I.S. Co. Ltd., which specializes in travel distribution. Under the terms of the agreement, the selling price was adjusted downward owing to a working capital adjustment of $0.6 million, paid to H.I.S. Co. Ltd. on March 29, 2018, and totals $48.9 million, of which $47.3 million was received in cash on November 30, 2017. The Corporation recognized a gain on business disposal of $31.3 million, net of transaction costs of $0.5 million and of $3.7 million due to the Fonds de Solidarité des Travailleurs du Québec [the "Fonds"], as an additional consideration to the repurchase price of the 19.93% interest held by the Fonds in December 2016.

Financial Position

As at April 30, 2018, cash and cash equivalents amounted to $903.3 million, compared with $566.3 million on the same date in 2017. The increase of $337.0 million was primarily due to the proceeds from the disposal of Ocean Hotels and Jonview as well as to positive cash flows generated by operations. The working capital ratio was 1.40, compared with 1.14 as at April 30, 2017. Deposits from customers for future travel amounted to $588.9 million, compared with $523.8 million as at April 30, 2017.

Off-balance-sheet agreements, excluding contracts with service providers, stood at $1,796.5 million as at April 30, 2018, compared with $1,745.2 million as at October 31, 2017. The $51.3 million increase resulted from the agreements entered into during the first quarter to lease two Airbus A321ceos and two Airbus A330s. The increase was partially offset by the repayments made and by the strengthening of the dollar against the U.S. dollar.

Outlook

Summer 2018 – The transatlantic market outbound from Canada and Europe accounts for a substantial portion of Transat's business during the summer season. For the period from May to October 2018, the Corporation's capacity is higher by 15%. To date, 64% of the capacity has been sold, load factors are similar to those of summer 2017, and selling prices of bookings taken are lower by 1.0% than those recorded at the same date in 2017. Higher fuel costs, combined with currency variations, will result in an increase in operating costs of 7.2% if jet fuel prices remain stable and the dollar remains at its current level against the U.S. dollar, the euro and the pound. On March 15, 2018, the rise in jet fuel costs resulted in a 1.3% increase in operating expenses. Since the beginning of April, the price of jet fuel increased by 11%.

On the sun destinations market outbound from Canada, for which summer is low season, Transat's capacity is higher by 5% than the previous year. To date, 53% of that capacity has been sold and load factors are ahead by 1%, when compared to 2017. The impact of increased fuel costs, combined with the dollar fluctuations, will result in an increase in operating expenses of 2.3% if jet fuel prices and the dollar level against the U.S. dollar remain stable. Unit margins are currently slightly lower than they were on the same date last year.

If current trends hold, and considering the recent significant increase in jet fuel costs, Transat expects that its global results for the second six-month period will be lower than last year.

Additional Information

The results were affected by non-operating items, as summarized in the following table: 

Hedging – The Corporation records in the statement of income (loss) any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel price risk, as well any gains or losses resulting from mark-to-market adjustments of certain hedging instruments used to mitigate exchange rate exposure. In the second quarter of 2018, this resulted in a $14.8 million non-cash gain ($10.9 million after income taxes), compared with a $0.9 million loss ($0.7 million after income taxes) in 2017. For the six-month period, this resulted in a $10.6 million non-cash gain ($7.8 million after income taxes), compared with $3.9 million ($2.8 million after income taxes) in 2017.

The Corporation uses hedging instruments to mitigate exchange rate exposure arising from its expenses and/or revenues in foreign currencies. Accordingly, under applicable accounting standards, any fluctuations resulting from the effective portion of mark-to-market adjustments of these instruments are recorded in the consolidated statement of financial position and consolidated statement of comprehensive income (loss) rather than in the consolidated statement of income (loss). For the second quarter of 2018, Transat recorded a gain of $16.0 million ($11.7 million after income taxes) on these foreign exchange derivatives, compared with $11.4 million ($8.3 million after income taxes) in 2017. For the six-month period, Transat recorded a loss of $1.1 million ($0.8 million after income taxes) on these foreign exchange derivatives, compared with a gain of $5.7 million ($4.1 million after income taxes) in 2017.

About Transat
Transat A.T. Inc. is a leading integrated international tourism company specializing in holiday travel. Under the Transat and Air Transat banners, the Corporation offers vacation packages, hotel stays and air travel to some 60 destinations in 26 countries in the Americas, Europe and the Middle East. Based in Montréal, the company has 5,000 employees. Transat is firmly committed to sustainable tourism development, as reflected in its multiple corporate responsibility initiatives over the past 10 years, and was awarded Travelife Partner status in 2016 (TSX:TRZ).

NOTES

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

Conference Call

Second quarter 2018 conference call: Thursday, June 14, 10:00 a.m. Dial 1-800-926-9801. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1-800-558-5253, access code 21881420, until July 13, 2018.

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 intended 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 news 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 news release. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, economic conditions, changes in demand due to the seasonal nature of the business, extreme weather conditions, climatic or geological disasters, war, political instability, real or perceived terrorism, outbreaks of epidemics or disease, consumer preferences and consumer habits, consumers' perceptions of the safety of destination services and aviation safety, demographic trends, disruptions to the air traffic control system, the cost of protective, safety and environmental measures, competition, the Corporation's ability to maintain and grow its reputation and brand, the availability of funding in the future, fluctuations in fuel prices and exchange rates and interest rates, the Corporation's dependence on key suppliers, the availability and fluctuation of costs related to our aircraft, information technology and telecommunications, changes in legislation, unfavourable regulatory developments or procedures, pending litigation and third party lawsuits, the ability to reduce operating costs, the Corporation's ability to attract and retain skilled resources, labour relations, collective bargaining and labour disputes, pension issues, maintaining insurance coverage at favourable levels and conditions and at an acceptable cost, 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 Report for the year ended October 31, 2017, 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.

www.transat.com

SOURCE Transat A.T. Inc.