Transat A.T. Inc. – Results for Fourth Quarter and Fiscal 2015

Published on : Friday, December 11, 2015

Air TransatTransat A.T. Inc., one of the largest integrated tourism companies in the world andCanada’s holiday travel leader, posted revenues of 839.2 million for the quarter ended October 31, 2015, compared with$844.7 million in 2014, a decrease of $5.5 million, or 0.6%. The Corporation recorded adjusted operating income1 of $86.7 million, compared with $76.0 million in 2014; and net income attributable to shareholders of $69.1 million ($1.82 per share basic and diluted), compared with $30.6 million ($0.79 per share basic and diluted) in 2014. Before non-operating items, Transat reported adjusted net income3 of $54.8 million for the fourth quarter of 2015 ($1.44 per share), compared with $49.4 million ($1.27 per share) in 2014.

 

“Our offering is increasingly distinctive and attractive to travellers. Hence, the very good results we recorded on the transatlantic market, which represents the lion’s share of our business in summer,” commented Jean-Marc Eustache, Transat’s President and Chief Executive Officer “We also posted a profit on sun destinations in the summer. These are among the best second-half results we have ever recorded, and this at a time when global capacity was up 7% on the transatlantic market. We did better only once, in 2013. All in all, this was an excellent summer. Our efforts on all fronts, including costs, product, brand, marketing and yield management, have produced the results we expected.”

 

Fourth-quarter highlights

 

The Corporation posted revenues of $839.2 million, compared with $844.7 million in 2014. The decrease of $5.5 million, or 0.6%, stems mainly from a decrease in average selling prices triggered by lower fuel costs. The Corporation recordedan adjusted operating income1 of $86.7 million, compared with $76.0 million for the same period in 2014. During the quarter, the Corporation’s capacity was up by 3.6% on the transatlantic market and by 10.8% on sun destinations, compared with 2014, contributing to a 3.9% increase in the total number of travellers.

 

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $17.1 million (2.9%) compared with the same period in 2014. On the transatlantic market, average selling prices were down 1.7% and the number of travellers was up 1.8%. On sun destinations, the number of travellers was up 10.7% and selling prices were up 3.5%. The increase in revenues stemmed mainly from the transfer of some European sales to Canada, following the introduction of a new booking platform. North American business units recorded an operating income of $56.2 million, compared with $42.4 million (after restructuring charges of $4.2 million) in 2014. On the transatlantic market, the Corporation’s main business segment in the summer, Transat successfully managed the decrease in selling prices, in light of sharply declining fuel costs and intense competition, thanks to an offering well aligned with traveller’s expectations, which contributed to improved results.

 

Compared with 2014, revenues of European business units, which are generated by sales in Europe and in Canada, decreased by$22.6 million (9.2%). The decrease stemmed in part from the transfer of some European sales to Canada, following the introduction of a new booking platform. It is also attributable to a decrease in bookings to North African and certain Mediterranean basin destinations, as well as lower tour sales to the United States, in the wake of a weaker euro. The number of travellers was 13.3% lower than in 2014. Average selling prices were slightly higher compared to 2014, due in part to variances in the product mix. European operations generated an operating income of $16.1 million, compared with $15.0 million in 2014. The favourable variance is the result of supply management and cost-control efforts.

 

12-month period highlights

 

For fiscal 2015, the Corporation posted revenues of $3.6 billion, compared with $3.8 billion in 2014, and an adjusted operating income1 of $100.8 million, compared with $99.9 million in 2014. The decrease in revenues is mainly attributable to the winter season. Compared with 2014, weaker results in the winter were offset by better results in the summer. For the year, the number of travellers was down 2.6%.

 

For the winter season, Transat posted revenues of $1.8 billion, versus $2.0 billion in 2014, and an adjusted operating loss1 of$32.4 million, compared with $23.9 million in 2014. Capacity on sun destinations was down 6.3%, which largely contributed to a 7.4% decrease in the global number of travellers. On that market, average selling prices were higher, offsetting the increase in operational costs that resulted from the combined effect of a lower Canadian dollar compared to the US currency and lower fuel costs. The decrease in operating income is mainly attributable to France, where market conditions were very difficult and translated into a lower number of travellers and a decrease in margins on tours.

 

For the summer, Transat posted revenues of $1.8 billion, as in 2014, and an adjusted operating income1 of $133.2 million, compared with $123.8 million in 2014. On the transatlantic market, the Corporation’s main business segment in the summer, Transat successfully managed the decrease in selling prices, in light of sharply declining fuel costs and intense competition, thanks to an offering well aligned with traveller’s expectations, which contributed to improved results compared to 2014.

 

Ocean Hotels, which is 35% owned by Transat, contributed $7.0 million to the Corporation’s net income for the year, compared with$8.1 million in 2014. During 2015, the Corporation received a $6.7 million dividend, and the stronger US dollar resulted in a$13.6 million increase of the equity participation value on the balance sheet as the investment is in US dollars. Transat’s equity participation in Ocean Hotels accounted for $97.9 million in assets as of October 31, 2015, compared with $83.9 million as of October 31, 2014.

 

Financial situation

 

As at October 31, 2015, the Corporation’s free cash totalled $336.4 million, compared with $308.9 million at the same date in 2014. The working capital ratio was 1.09, compared to 1.12 as at October 31, 2014, and deposits from customers for future travel amounted to $489.6 million, compared with $424.5 million as at October 31, 2014. Off-balance-sheet agreements, excluding contracts with service providers, stood at $713.7 million as at October 31, 2015, compared with $690.3 million as at October 31, 2014, the increase being attributable to seasonal leasing agreements for additional Boeing 737 aircraft, and the rise of the US currency, partially offset by payments made during the year.

 

The Corporation initiated a Normal Course Issuer Bid on April 15, 2015. As of October 31, 2015, the Corporation has purchased 1,296,090 shares for a cash consideration of $9.4 million. As of December 4, 2015, the Corporation had purchased a total of 1,564,990 shares, for $11.3 million.

 

Outlook for the first half

 

Globally, Transat’s bookings for the first half are ahead by 15% over 2014 at the same date.

 

On the Sun destinations market outbound from Canada, the Corporation’s main market segment in the winter, Transat’s capacity is approximately 7% higher than that offered last year and 45% of that capacity has been sold. Bookings are ahead by 12% and load factors are up 2.1%. The impact of the weaker Canadian dollar, net from lower fuel costs, will be a 4.0% increase in operating costs if the dollar and fuel costs stay at their current level. At this moment, margins are similar to last year at the same date.

 

On the transatlantic market, where it is low season, Transat’s capacity is up 19% compared to that offered last winter. To date, 46% of that capacity has been sold, and bookings are ahead by 15%. Load factors are down 1.2% and selling prices are 6.0% lower. The impact of lower fuel costs will be a 3.0% decrease in operating costs if they stay at their current level.

 

In France, also in low season in winter, market conditions in 2015 were very difficult. Bookings are up 21% and selling prices are 1.5% higher, compared with last year at the same date.

 

In light of the above, operating income for the winter should improve over last year.

 

 

Cost-reduction and margin-improvement initiatives

 

As described in its plan announced in the first quarter of 2015, the Corporation is continuing to implement its initiatives to reduce operating costs and improve unit margins, with an objective of at least $100 million over three years. In 2015, thanks mainly to the internalization of narrow-body aircraft and the implementation of a flexible fleet, the Company reached its objective of $45 million. The targets for 2016 and 2017 are at least $30 million and $25 million.

 

 

 

Source:- Transat

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