Seeing Light: Demand Soaring For Transat, But So Are Fuel Prices

Despite the setback caused by the Omicron COVID variant, Transat is seeing a strong recovery in demand, with customer deposits for future travel hitting nearly $500 million, up 60% from last quarter and reaching 80% of pre-pandemic levels.

"When the effect of Omicron subsided at the end of February, operations and sales rebounded strongly, allowing us to end the quarter on a very encouraging note and generate revenues of $358 million for the period,” said president and CEO Annick Guerard.

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“We foresee a strong recovery and will continue to implement all the measures necessary to capitalize on it."

Compared with 2021, revenues for the company’s second quarter ended April 30, were up $350.6 million. And after more than two years of unprecedented darkness, Transat is finally seeing some light.

"Sales are progressing in a very satisfactory manner for the summer,” says Guerard. “The cost of fuel rose sharply, without which we would have reported positive adjusted operating results in April. Nonetheless, we observe that consumers are ready to accept price hikes and we have implemented a fuel hedging program to protect us against significant increases during the summer."

"For the longer term, we continue to implement our strategic plan. While continuing to receive new fuel-efficient aircraft to the fleet, we continue to develop our network by adding new destinations and connections, with or without code sharing. We also benefit from our employees' strong support, including our pilots with whom we have entered into a three-year agreement, ensuring stability for the coming period," concluded Guérard.

Revenue growth in the quarter was dampened by the sharp decline in demand and massive booking cancellations following the emergence of the Omicron variant during the first quarter and the new restrictive measures put in place by the federal government on December 15, 2021.

As a result, Transat initially cancelled nearly 30% of flights scheduled from January to the end of February. At the beginning of February more winter season flights were dropped, reducing total winter season capacity by approximately 22% of initial plans.

Operations resulted in an operating loss of $87.5 million, comparable to the $86.5 million loss in 2021, as fuel prices surged 75.5% during the quarter, compared with 2021. Transat reported an adjusted operating loss of $51.0 million, identical to 2021.

Transat’s liquidity is on the rise too, with cash and cash equivalents of $511.2 million at the end of Q2, compared with $346.1 million at the same date in 2021.

Transat says highlights of its recovery and future growth plans include:

-- The reopening of most pre-pandemic network routes.

-- Codeshare agreements with WestJet (bookings now open) and Porter (opening scheduled for the fall).

-- New destinations including Los Angeles and San Francisco.

-- New direct flights, including Montréal-Amsterdam and Quebec City-London.

-- Numerous additional routes possible via the connectair by Air Transat platform through virtual interlining agreements with eight airline companies offering over 245 destinations.

-- The arrival of two new A321neoLR aircraft this summer, with five more on order.

-- A three-year extension of a labour agreement with pilots.

After the low reached during the Omicron wave, Transat says load factors have largely improved, reaching 85% on flights from March to May for south destinations.

Selling prices for the summer season have been steadily increasing since the start of spring, the company says. Following recent announcements regarding the easing of health measures and travel restrictions by governments in Canada and other countries, Transat says the current situation is “showing very encouraging signs in terms of bookings as the last-minute booking trend persists.”

Across all markets, Transat’s planned capacity for summer 2022 represents 89% of the 2019 capacity, including 75% for the transatlantic program and 98% for the summer sun market.

Transat is boosting its presence in the transborder market by quadrupling its capacity compared with 2019 and growing capacity by 5% in the domestic market compared with 2019.

The company warns, however, that if fuel prices remain at the current level they will create “strong pressure on our operating costs and profitability.”

After more than two years of unprecedented trauma, Transat acknowledges that predicting the future is a tough call.

“It remains difficult at this time to forecast the evolution of the health and economic situation or its impact on bookings and future financial results with sufficient precision to present a more comprehensive outlook for the third quarter and summer of 2022,” Transat says.