2014-12-15 - Flawed analysis – QMI Agency, December 12, 2014
(Abridged version, for full text see French) An article from Agence QMI in the Journal de Montréal and the Journal de Québec on December 12, 2014 contains inaccuracies and requires corrections.
The reporter infers that financial instruments used by Air Transat to hedge against aircraft fuel cost variations are less efficient than those used by its competitors. His analysis is flawed. In an email we sent on December 12, we wrote, in substance:
- Futures contracts are indeed hedging instruments, and paragraphs 3 and 4 of the article are inaccurate (compressed and paraphrased from the French).
- Aircraft fuel prices are indeed going down, when expressed in US dollars. But over the last year, the Canadian dollar has weakened considerably, and this has offset the impact of much of the oil prices drop for companies reporting in Canadian dollar (compressed and paraphrased from the French).
On the aforementioned points, a precision was published by both media on December 13, which we find incomplete. The reporter wrote that “… the price of fuel is also impacted by the Canadian dollar.”
The main thrust of the article and its headline are problematic and may indicate a lack of understanding of the travel market dynamic. The piece reads: “No price reductions in sight at Air Transat – The drop in oil prices paves the way for reduced travel fares in the coming months, but Transat will not be able to match its competitors. The tour operator admitted as much in a conference call held yesterday… “
In our email of December 12, we wrote:
- The article’s lead and its headline are inaccurate. It would have been acceptable for the reporter to write that Transat may not benefit from reduced fuel costs, thanks to the fall of the Canadian dollar and its hedging program (like other carriers). But no link can be established with selling prices, which are defined by supply and demand. Consequently, the headline and paragraphs 1 and 2 of the article are inaccurate. And obviously, the company admitted nothing of the sort. (compressed and paraphrased from the French).
In effect, in the travel industry, operators sometimes need to sell a portion of their inventory below unit cost to limit losses. Airline seats and roomnights earmarked for precise dates are a perishable product. Consequently, any operator will accept to sell at a loss of $100, rather than lose $1,500 on an empty seat and room. In other words, selling prices do not fluctuate based on costs, but based on sales, as industry observers know. In a way, tour operators’s primary challenge is to keep costs under prices, rather than keep prices above costs, as prices are determined by market forces.
In the article, the reporter makes two points, both false and without merit: that Transat will be unable to reduce selling prices, and that the company admitted as much. Tellingly, in an email received December 12, the reporter did not address this question.
Finally, the article contains a factual error which has been corrected on December 13: cost reductions for the 2012-2014 period amounted to $55 million, not $75 million.
2014-09-12 - Clarification regarding our results for third quarter 2014
Transat reported its third quarter results on September 11, 2014. Adjusted net income, which is a good reflection of the company's actual performance in light of market conditions, was 13% inferior to those of Q3, 2013, when Transat had a record summer season. The results reported yesterday were actually among the best ever for that quarter. In addition, they were recorded when capacity on Transat European destinations was 10% higher. In other words, despite demanding market conditions, Transat had a very good quarter, better than expected by several financial analysts.
Net income, for its part, was 37% lower than in 2013, as this line of financial statements includes non cash, non operational items, most notably mark-to-market accounting of fuel hedging contracts. About $12 million out of the $15 million negative variance, quarter over quarter, relates to said mark-to-market accounting.
Some news outlets, including The National Post and the Toronto Star, wrongly connected a "37% plunge in profit" with market conditions during the quarter, largely due to erroneous dispatches from the Canadian Press, and thus are this morning conveying an inaccurate picture of Transat's performance during the quarter. Reporters unfamiliar with accounting or financial statements interpretation can consult our website, which contains a backgrounder on mark-to-market accounting, call us, or seek outside expertise.
2014-09-02 - Erroneous information in a La Presse story
A story published in the August 30, 2014, edition of La Presse about "earnings kept abroad" of large Quebec companies contains erroneous information about Transat. Transat should have been included in the list of companies which do not disclose such information.
2014-08-26 - False information in trade travel media O2B.com
Trade travel media O2B.com, of Spain, is conveying false information regarding Air Transat when it writes that the airline owes half a million euros to Barcelona Airlines, its former sales agent in Spain. Air Transat ended its business relationship with Barcelona Airlines in early 2014, when Barcelona Airlines defaulted on the remittance of a significant amount of money (receipts from actual ticket sales) owed to Air Transat. It was discovered soon after that Barcelona Airlines had used funds earmarked for marketing for other, unintended purposes. Therefore, Air Transat owes Barcelona Airlines nothing and the thrust of O2B.com's coverage is without merit. In contempt of basic journalistic principles, reporter Estefania Oliver did not contact Air Transat before publishing a piece headlined: "Air Transat deals a severe blow to Catalan airlines agency," which is causing unwarranted damage to Air Transat's reputation. A request for right of reply, correction and apology will be presented to O2B.com in short order.
2014-07-01 - Clarification regarding an article in Finance et Investissement magazine of May 28, 2014
Following an article in Finance et Investissement magazine written by Richard Cloutier, Transat wishes to clarify the facts concerning the compensation paid to its President and Chief Executive Officer, Jean-Marc Eustache.
Contrary to what is stated in the article, no direct or indirect action taken by the Montrusco Bolton investment company ever resulted in an adjustment to the compensation of any senior executive of Transat.
In 2011, Transat A.T.’s Board of Directors adopted, on its own initiative, the “say on pay” principle and submitted it to shareholders in March 2012. The introduction of this provision is in no way attributable to Montrusco Bolton’s action, contrary to what Mr. Cloutier’s story implies.
At our request, Finance et Investissement published a clarification in its July 1, 2014, edition. We extend our thanks.
2014-01-24 - Groundless rumor in the wake of a press release dated January 23, 2014
On January 23, 2014 Transat issued a press release to fulfill its disclosure obligations. The release describes a technical change which will be submitted to the shareholders on March 13, 2014. Some trade media have drawn erroneous conclusions, which started a rumor that a take-over could be envisioned. Such rumors are without merit.
2014-01-13 - Unfounded allegations on Radio-Canada
On January 8, 2014, groundless statements regarding aircraft maintenance in the airline industry were made during a Radio-Canada morning show. A retraction was requested. It was refused, despite what had been said was unsubstantiated and irresponsible, and the public had been misled. The following letter
was sent to Radio-Canada on January 13 by the National Airlines Council of Canada.