Eric Atkins, Transportation Reporter | June 10, 2021
Tour operator Transat AT Inc. TRZ-T +2.64%increase is pursuing takeover talks with Pierre-Karl Peladeau as the airline’s losses pile up amid a halt to operations that has reached the fifth month.
Montreal-based Transat said on Thursday morning it lost $69-million in the three months ending April 30, or $1.84 a share. For a quarter in which Transat’s planes were grounded, revenue fell by 98.7 per cent to $7.6-million.
The airline halted flights at the end of January after the federal government called for an end to service to Mexico and the Caribbean and imposed new travel restrictions.
“Following a quarter without revenues, progress made on vaccinations allows us to plan for a gradual resumption starting July 30,” said Annick Guérard, who in May replaced retiring founder Jean-Marc Eustache as Transat’s chief executive officer.
Ms. Guerard takes charge at a low point in Transat’s history. The pandemic halted its operations and sent plunging the value of Air Canada’s AC-T -1.29%decrease proposed takeover to $190-million from $720-million. The two airlines agreed in April to abandon the deal after the European regulator signalled it was unlikely to approve it.
Gestion MTRHP Inc., an investors group led by Mr. Peladeau, has made a cash offer to buy Transat for $5 a share. The talks are continuing, Transat said on Thursday, and might not lead to a deal.
Mr. Peladeau on May 13 said he had ended talks to buy Transat after his offer was dismissed by shareholder Letko Brosseau and Associates as too low. A spokeswoman for Mr. Peladeau declined to comment on Thursday.
Transat shares traded at about $5.70 on Wednesday on the Toronto Stock Exchange.
Meanwhile, the company said it has secured enough financing to restart its operations, but will take steps to slash costs, including terminating its hotel division and ending leases on three aircraft.
On a conference call with analysts on Thursday, Ms. Gerard laid out Transat’s “prudent” restart for the airline, adding routes gradually to capitalize on demand from travellers visiting families and friends.
She said shedding planes and the expected sale of the Mexican hotel property will leave Transat a simpler company focused on leisure air travel that enable it to be profitable with less revenue.
She said Air Transat will focus on Eastern Canada – Montreal in particular – and flights to the United States, as it builds a network fed by domestic connections to the western provinces while maintaining international destinations and alliances with other carriers. The airline has pared its fleet to two models from four, the Airbus A330 and A321, simplifying operations and reducing costs.
Transat will no longer lease seasonal planes in the winter, and will make more use of the aircraft it owns.
“It’s an exciting time for me to take over at Air Transat,” Ms. Guerard said. “We have a solid plan for that. We have the team for it. And now we have the financing.”
Ms. Guerard expressed optimism demand for air travel will recover to 2019 levels more quickly than the industry forecast of 2024 or 2025. But 2022 will be another difficult year for Transat, Ms. Guerard said. “After that, we will be able to come back … and look for profitability.”
Benoit Poirier, a stock analyst at Desjardins Financial, said Transat’s slow restart means it will not benefit from any recovery in demand for air travel until late in 2021.
Transat has accepted a taxpayer bailout worth as much as $700-million, a deal that lets it refund $310-million in airfares for flights cancelled in the pandemic while allowing the federal government to own as much as 20 per cent of the company. Transat said it has drawn $220-million of a total available $820-million financing, and has $346-million in cash and equivalents.
Transat has idled more than 4,000 of its 5,000 employees and said it will continue to collect federal wage subsidies.
Porter Airlines and Sunwing Airlines have also grounded their planes in the pandemic, which caused the global industry to post deep losses amid travel bans and closed borders.
Peter Letko, vice-president of Letko Brosseau and Associates, Transat’s largest shareholder, said restarting an airline is an expensive, time-consuming venture that must be done carefully to ensure profitability.
“I think the challenge for all airline executives now is moving back toward some normalcy as people get vaccinated and they start to reactivate their business,” Mr. Letko said by phone. “My hat’s off to them – this is a big challenge. Get your pilots ready, the equipment, all the support staff including those on board and the whole chain of people that supply an airline. It’s a huge job.”
Mr. Letko has for years pushed underperforming Transat to boost profits by charging more for airfares, while urging management to turn away takeover offers he sees as too cheap. In April, he dismissed as too cheap the takeover from Mr. Péladeau.