Transat A.T. Inc. – Results for third quarter of 2019

Provided by Transat A.T. Inc/CNW

Third quarter results are up;
Acquisition of the Corporation is pending regulatory approvals

For the third quarter:

  • Revenues of $698.9 million.
  • Adjusted operating income of $21.8 million (operating loss of $7.6 million). *
  • Adjusted net income of $5.7 million (net loss attributable to shareholders of $11.0 million). * 
  • The Corporation took delivery of its first two Airbus A321neoLRs.

For the nine-month period:

  • Revenues of $2.2 billion.
  • Adjusted operating loss1 of $12.9 million (operating loss of $73.3 million). *
  • Adjusted net loss3 of $36.6 million (net loss attributable to shareholders of $53.5 million). * 

Potential transaction:

  • Arrangement plan with Air Canada to acquire the Corporation approved by 94.7% of the shareholders on August 23 and through the issuance of a final approval order by the Superior Court of Québec on August 28.
  • Transaction expected to close by the second quarter of the 2020 calendar year if the required regulatory approvals are obtained and conditions are met.

MONTRÉAL, Sept. 12, 2019 /CNW Telbec/ – Transat A.T. Inc. (“Transat” or the “Corporation”), one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, announces its results for the third quarter ended July 31, 2019.

 “We’re very satisfied with the strong support received from our shareholders and the final approval of the arrangement plan. The planned transaction is good news for our shareholders, our employees, our clients and our community, and we’re currently working to obtain the required regulatory approvals to complete it,” stated Jean-Marc Eustache, President and Chief Executive Officer of Transat. “Meanwhile, we remain focused on our operations and note an improvement in our adjusted results for the quarter compared with last year.”

* NOTE: Figures in parentheses and not designated as adjusted on this page refer to IFRS financial measures for the current year

Third-quarter highlights

The Corporation posted revenues of $698.9 million for the quarter, up $34.3 million (5.2%) compared with 2018. This increase was attributable to the higher average selling prices and improved load factors across all markets. The number of travellers rose 4.3% in the transatlantic market, the Corporation’s main market for the period.

Operations generated adjusted operating income1 of $21.8 million, compared with $2.4 million in 2018, an improvement of $19.5 million. This increase was mainly driven by the higher average selling prices and improved load factors across all markets.

Net loss attributable to shareholders amounted to $11.0 million or $0.29 per share (diluted) compared with $5.0 million or $0.13 per share (diluted) in 2018. The net loss attributable to shareholders included professional fees of $6.0 million and compensation expenses of $7.7 million recorded in connection with the potential acquisition transaction of the Corporation by Air Canada. The compensation expenses are mainly related to the provisions recorded for stock-based compensation plans which include a change of control clause and to adjustments made to stock-based compensation plan provisions subsequent to the significant rise in the share price. Excluding non-operating items, Transat reported adjusted net income3 of $5.7 million ($0.15 per share) for the third quarter of 2019, compared with an adjusted net loss3 of $5.0 million ($0.13 per share) in 2018.

Nine-month period highlights

The Corporation recognized revenues of $2.2 billion, up $63.8 million or 2.9% from 2018. The higher revenues recorded during the winter season is mainly attributable to the increase in average selling prices across all markets, combined with a 2.8% rise in the number of travellers in the sun destinations market, resulting from the decision to increase capacity in that market. The increase in revenues was offset by a greater proportion of flight-only sales, which generate lower unit revenues than packages. For the summer season, the increase was attributable to the higher average selling prices and improved load factors across all markets. The number of travellers rose 4.3% in the transatlantic market.

For the nine-month period, operations generated an adjusted operating lossof $12.9 million compared with $14.3 million in 2018, an improvement of $1.4 million. This increase resulted from the higher adjusted operating income1 during the summer season, partly offset by the increase in adjusted operating loss for the winter season. The increase in fuel prices, combined with the weakening of the dollar against the U.S. dollar, and the additional costs incurred for the transition and optimization of the Corporation’s fleet exceeded the increase in the average selling prices of packages during the winter season.

Net loss attributable to shareholders amounted to $53.5 million or $1.43 per share (diluted) compared with $0.3 million or $0.01 per share (diluted) for the corresponding nine-month period of 2018. The net loss for 2018 included a $31.3 million gain on the sale of the Corporation’s subsidiary Jonview. Before non-operating items, Transat reported an adjusted net loss3 of $36.6 million ($0.98 per share) for the period ended July 31, 2019, compared with $37.7 million ($1.01 per share) in 2018.

Financial position

As at July 31, 2019, cash and cash equivalents amounted to $723.8 million, compared with $867.2 million on the same date in 2018. This change resulted primarily from the purchase of land in Mexico ($75.7 million), from the purchase of a replacement engine for the Airbus A321neoLR fleet ($16.8 million), from the change in the calculation of cash and cash equivalents to be held in trust following the adoption of the new revenue recognition standard IFRS 15 ($21.3 million), from the adjusted net loss for the past 12 months ($23.0 million) and from commissioning costs for aircraft added to the fleet ($13.8 million).

The working capital ratio was 1.19, compared with 1.41 as at July 31, 2018.

Deposits from customers for future travel amounted to $611.1 million, compared with $587.2 million as at July 31, 2018.

Off-balance-sheet agreements, excluding contracts with service providers, stood at $2.4 billion as at July 31, 2019, compared with $2.5 billion as at October 31, 2018. The $152.8 million decrease resulted primarily from repayments made during the nine-month period, partially offset by the weakening of the dollar against the U.S. dollar.

Outlook

2019 fourth quarter – 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 August to October 2019, Transat’s capacity is similar to that deployed on the same date last year. To date, 83% of the capacity has been sold, the load factors are lower by 0.9% compared with summer 2018 and selling prices of bookings taken are 2.1% higher than those recorded at the same date in 2018. The impact of currency variations, combined with lower fuel costs in U.S. dollars, will not result in a significant increase in operating costs if aircraft fuel prices remain stable and the dollar remains at its current level against the U.S. dollar, the euro and the pound.

On the sun destinations market outbound from Canada, for which summer is low season, 83% of capacity is sold and the load factors are 5.6% higher compared with 2018. Unit margins are currently higher compared with those recorded on the same date last year.

If the current trends hold, the Corporation expects its results for the fourth quarter to be slightly higher than those of last year.

2020 winter – On the sun destinations market, the Corporation’s main market during the winter season, Transat’s capacity is 9% higher than that deployed on the same date last year. To date, 27% of the capacity has been sold and load factors are 1.8% higher compared with 2019. The impact of lower fuel costs, combined with fluctuations of the Canadian dollar, will not result in a significant increase in operating costs if aircraft fuel prices remain stable and the dollar remains at its current level against the U.S. dollar.

The Corporation believes it is still too early to draw any conclusions regarding winter season results.

Discussions relating to the sale of the Corporation

On August 23, 2019, a significant majority of the Corporation’s shareholders voted in favour of the special resolution approving the plan of arrangement entered into on June 27 pursuant to which Air Canada is expected to acquire all of the issued and outstanding Class A variable voting shares and Class B voting shares of Transat for a cash consideration of $18.00 per share.

On August 29, 2019, the Corporation announced that the Superior Court of Quebec issued a final order approving the plan of arrangement with Air Canada. The arrangement remains subject to certain closing conditions, including regulatory approvals described in Transat’s management information circular dated July 19, 2019, as well as other customary closing conditions. In addition, a public interest assessment regarding the arrangement is being undertaken by Transport Canada with input from the Commissioner of Competition. If the required regulatory approvals are obtained and conditions are met, it is now expected that the transaction will close by the second quarter of the 2020 calendar year.

The management information circular dated July 19, 2019 contains additional information regarding the arrangement.

The Corporation has agreed to limit its undertakings and expenses related to the execution of its hotel strategy in the period leading up to the closing of the potential transaction.

Restatement

On June 27, 2019, the Corporation announced that it needed to restate its consolidated financial statements and management’s discussion and analysis (“MD&A”) for the year ended October 31, 2018 as well as for the first quarter ended January 31, 2019 and the second quarter ended April 30, 2019. Management has concluded that a restatement of its consolidated financial statements was necessary regarding the carrying amount of the non-controlling interest in the Trafictours Canada Inc. subsidiary.

The carrying amount of the non-controlling interest is related to the Trafictours Canada Inc. subsidiary and the right of the minority shareholder to require the Corporation to purchase the Trafictours Canada Inc. shares it holds at a price calculated in accordance with a pre-determined formula, subject to adjustment based on the circumstances, payable in cash. The estimated repurchase value of this option is taken into account in the carrying amount of the non-controlling interest. The difference results from the application of a different formula than as per the contract for the calculation of the purchase price of the minority interest. As a result, the Corporation restated its financial statements to increase the liability for the non-controlling interest reported under Trade and other payables in the consolidated statements of financial position which was undervalued by $25.9 million, $23.3 million and $20.5 million as at October 31, 2018, January 31, 2019 and April 30, 2019, respectively. The recording of these adjustments had no impact on the Corporation’s consolidated statements of income for the aforementioned periods as these adjustments are recorded as equity transactions in Retained earnings.

As part of the restatement of its consolidated financial statements as at October 31, 2018, the Corporation had to review subsequent events up to September 11, 2019, the new date of authorization to publish the financial statements for the year ended October 31, 2018. On June 5, 2019, the Corporation settled without admission of liability, for an amount of US$5.0 million [$6.7 million], a litigation whereby plaintiffs alleged misappropriation of confidential information and solicitation of employees. The amount was recorded under Special items in the restated consolidated statement of income for the year ended October 31, 2018. This adjustment is included under Trade and other payables and Retained earnings in the consolidated statements of financial position as at October 31, 2018. No provision was recorded in the financial statements as at October 31, 2018 as initially published as it was not possible to determine with any degree of certainty the extent of any financial liability that would have arisen had the Corporation been unsuccessful in its defence of this lawsuit.