Transat AT vows to raise prices next summer after third-quarter losses
An Air Transat A310 Airbus is shown in Manzanillo, Mexico, in this undated photograph. (Jeff McIntosh/The Canadian Press)
Christopher Reynolds, The Canadian Press
Published Thursday, September 13, 2018 5:42PM EDT
MONTREAL -- Transat AT Inc. executives have pledged to raise prices next summer after a spike in fuel costs sent the carrier on course to its least profitable third quarter in a decade.
Jet fuel surged to a three-and-half-year high of US$2.15 per gallon south of the border last May, according to the U.S. Energy Information Administration. In Canada, a 25-per-cent increase in the price of gasoline drove an even steeper rise in average airfares over the past year.
"The fuel increases happened very suddenly in a short time period. In those circumstances, often we are not able to pass those increases to consumers," said chief operating officer Annick Guerard in a conference call with analysts Thursday.
The number of travellers in the transatlantic market increased 11.5 per cent in the third quarter -- which spans the high summer season -- alongside 13.9 per cent capacity growth, but not enough to offset losses from fuel costs, noted chief financial officer Denis Petrin.
"Next summer, we can all anticipate that the pricing will include the price of fuel as it is today. We have no doubt about this," he said.
Guerard said the Montreal-based company opted not to join Air Canada and WestJet Airlines Ltd. in jacking up prices, which climbed 28 per cent overall in Canada in the first half of 2018 compared to the same period last year, according to TD Economics senior economist James Marple.
"We are different beasts," Guerard said.
Transat's share price plummeted nearly 13 per cent to $7.71 in early trading Thursday before rebounding to $8.25 when markets closed.
Transat president and chief executive Jean-Marc Eustache expressed enthusiasm about the travel company's long-term outlook, but remained cool on near-term prospects.
"We are still confident that we will meet our long-term targets, while Air Transat was just named the world's best leisure airline by Skytrax," Eustache said, adding that the company has opened its hotel division headquarters in Miami.
"We think that in the winter, the best thing that we will do will be around break-even," he later told investors.
Karl Moore, an associate professor at McGill University's business school, said delayed fare bumps correspond to "a kind of lag effect -- they're hopeful that they'll be able to catch up with those fuel prices next year."
Heightened competition from a more crowded market -- which includes WestJet's ultra-low-cost Swoop, Air Canada's discount Rouge and Iceland's Wow Air -- "puts the squeeze" on Air Transat.
On Thursday, Transat reported a loss of $4.0 million or 11 cents per diluted share for the third quarter, compared with a profit of $26.6 million or 72 cents per share in the same quarter last year.
Excluding non-operating items, the company reported an adjusted loss of $3.0 million or eight cents per share for the quarter compared with an adjusted profit of $26.9 million or 73 cents per share a year ago -- which had blown past analyst expectations by more than half.
The latest earnings report came in far below analyst expectations of $15.34 million in net income or 31 cents per share, according to Thomson Reuters Eikon.
Revenues totalled $696.6 million, down five per cent from $733.2 million in the same quarter in 2017 when its results included $77.0 million from its Jonview subsidiary, which was sold last November.
The number of travellers was up 7.9 per cent in the sun destinations market while capacity rose 7.0 per cent, Transat said.
Guerard said Transat might be still consider partnering with a loyalty program after Aimia Inc. -- with which Transat had signed a partnership agreement along with Flair Airlines and Porter Airlines -- reached a tentative $450-million deal to sell Aeroplan to an Air Canada-led consortium.
"We are in discussion with different partners. But such a program would have to be very simple with a big return on investment for us to get in," Guerard said.
She stressed that Transat would be "very careful" about entering into a deal where reward points might not be "so valuable for our type of consumers, who are a leisure traveller."
Senior management also put a focus on ancillary revenue sources such as seat selection, travel insurance and buy-on-board products, with the goal of going from $94 million in 2017 to $150 million by 2022.
Companies in the story: (TSX:TRZ, TSX:AC, TSX:WJA, TSX:AIM)