Grounded planes weigh on Transat growth plans, after strike fears erode earnings

An Air Transat Airbus A321 generates contrails as it approaches for landing in Lisbon, Sunday, Oct. 30, 2022. (Armando Franca, The Associated Press)

Transat A.T. Inc. has reined in summer growth plans as grounded planes continue to weigh on profit margins -- after fears of a strike ate away at bookings last quarter, yielding a net loss, its CEO said.

"The persisting speculation of a strike by flight attendants starting last November clearly affected bookings and yield for the winter season," said chief executive Annick Guerard.

The Montreal-based tour operator's 2,100 flight attendants voted 99 per cent in favour of a strike mandate that month and twice rejected tentative deals before approving a new collective agreement in late February.

Guerard said 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."

As a consequence, Air Transat's seat capacity ramp-up of 25 per cent in its first quarter exceeded its passenger increase of 20 per cent, resulting in slightly emptier planes en route to sun destinations.

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 coupled with "heightened consumer price sensitivity ... as well as fierce competition" in the Toronto market put further pressure on profit margins, Guerard said.

Last year, Pratt & Whitney parent RTX Corp. said it would recall about 3,000 engines because parts were made with contaminated powdered metal that could cause cracking. Air Transat has grounded four jetliners as a result, and expects to remove one or two more from the skies before the year is out -- 15 per cent of its 40-plane fleet.

The company has secured three Airbus A330 widebody aircraft leases to compensate, but they don't come cheap.

"Due to the operating challenges caused by the Pratt & Whitney engine situation as well as the problems affecting the Boeing 737 Max 9" -- highlighted by the midflight blowout of a side panel in January -- "a great number of carriers are looking for aircraft," Guerard noted.

"These issues combined with an already stressed supply chain are putting important pressures on the availability and the cost of aircraft leasing."

The tour operator's share price was down 34 cents or more than eight per cent to $3.90 by midday Thursday.

The grounded planes and high price tags on fresh leases drove the CEO's decision to scale back growth plans. Instead of bolstering seat capacity by 19 per cent this year, she opted instead for a more modest 13 per cent increase and scrapped some domestic and Canada-U.S. routes as a result.

"We have cancelled routes because of lack of aircraft," Guerard told analysts on a conference call. "We want to be cautious and make sure that we don't take too much risk for the upcoming year."

The company swung to a loss of $61 million in the three months ended Jan. 31, worse than the $56.6-million loss of the same period a year earlier. Transat has cleared a profit only twice in the past 17 quarters.

Revenue rose 18 per cent to $785.5 million in its first quarter from $667.5 million a year prior, the travel company said.

On an adjusted basis, Transat lost $2.11 per share compared with an adjusted loss of $1.62 per share a year ago. The result fell well below analysts' expectations of an adjusted loss of $1.22 per share, according to financial markets data firm Refinitiv.

This report by The Canadian Press was first published March 14, 2023.