- Revenues of $792.6 million, compared with $877.3 million in 2009, attributable to a reduction in the number of travellers and lower selling prices.
- Operating loss1 of $12.4 million, compared with $8.5 million for the first quarter of 2009.
- Adjusted after-tax loss3 of $18.2 million, compared with an adjusted after-tax loss of $11.8 million in 2009.
- Net loss of $13.9 million, compared with $29.4 million last year.
Montreal, March 11, 2010
Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, posted revenues of $792.6 million for the quarter ended January 31, 2010, compared with $877.3 million for the same period of 2009, a decline of $84.7 million, or 9.7%. The Corporation recorded an operating loss1 of $12.4 million for the quarter, compared with $8.5 million in 2009, and a net loss of $13.9 million ($0.37 per share on a diluted basis), compared with a net loss of $29.4 million ($0.90 per share on a diluted basis) in 2009. Before non-cash and non-operating items, Transat’s adjusted after-tax loss3 stood at $18.2 million in 2010 ($0.48 per share on a diluted basis), versus an adjusted after-tax loss of $11.8 million ($0.36 per share on a diluted basis) for the first quarter of 2009.
“The decrease in revenues stems mainly from lower selling prices and volumes,” said Jean-Marc Eustache, President and Chief Executive Officer. “Our operating costs decreased significantly, partially offsetting the unfavourable impact of lower prices on our margins, in a highly competitive commercial environment.”
First quarter highlights
The Corporation’s first quarter revenues declined by 9.7%, or $84.7 million, from $877.3 million in 2009 to $792.6 million in 2010. The decrease stems in part from the Corporation’s decision to reduce its capacity, in light of a reduction in the number of travellers in America; it is also attributable to lower selling prices and a stronger Canadian dollar. Transat recorded an operating loss of $12.4 million for the quarter, compared with a loss of $8.5 million in 2009. The decrease in margin is attributable to a reduction in commercial activity and lower selling prices.
Revenues for the North American business units, which are generated by sales to customers in Canada and abroad, decreased by $82.6 million (11.2%) during the first quarter from the same period in 2009. The decrease is attributable to a reduction in commercial activity, partially stemming from a decision to reduce capacity and a 8.6% reduction in the number of travellers, as well as from lower selling prices. For the quarter, Transat recorded an operating loss of $3.9 million (0.6%), compared with a margin of $1.3 million (0.2%) in 2009. The decrease in margin is mainly due to lower selling prices, the result of overcapacity in the marketplace, and a highly competitive commercial environment.
Revenues for the European business units, which are generated by sales to customers in Europe and in Canada, decreased by $2.1 million (1.5%) in the first quarter compared with the same period in 2009, despite a 30.1% increase in the number of travellers. The revenue boost from higher traveller volumes was insufficient to offset the effect of a strong Canadian dollar against the euro and the pound sterling, and lower selling prices. The sharp growth in traveller volumes was driven by Canadian Affair’s sales in the U.K. and Canada, partially offset by lower volumes in France. The European business units recorded an operating loss of $8.5 million (6.2%) during the quarter, versus an operating loss of $9.8 million (7.1%) for the corresponding period in 2009.
Financial position
Cash and cash equivalents not held in trust stood at $147.7 million, compared with $180.6 million as of October 31, 2009. The balance sheet debt amounted to $106.3 million at January 31, 2010, or $4.6 million lower than at October 31, 2009.
Outlook
For the second quarter, reservations from Canada to sun destinations are similar to the record volumes of the previous year, and Transat’s capacity is slightly higher. In France, reservations levels are similar to the previous year.
Selling prices are inferior to the previous year, and the decrease will be partially offset by lower fuel prices, hotel costs, other land portion expenses, and air seats costs. In addition, as in the first quarter, Transat will not be able to fully benefit from the strength of the Canadian dollar in the second quarter, as a result of its foreign exchange hedging positions. For the second quarter, Transat expects to record a loss.
For the summer 2010, it is too early to make a statement on pricing trends, but reservations are superior to the previous year.
Additional Information
The results of the first quarter of 2009 and 2010 were impacted by non-cash and non-operating items, as summarized in the following table:
Fuel hedging—The Corporation records any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel price risk in the statement of income. For the first quarter 2010, this translated into a $1.2 million non-cash gain ($0.9 million after income taxes) compared with a $28.5 million loss ($20.7 million after income taxes) in 2009.
The Corporation also uses hedging instruments to mitigate foreign exchange exposure stemming from its U.S. dollar expenses. Accordingly, under applicable accounting standards, any fluctuations resulting from mark-to-market adjustments of these instruments are recorded in the balance sheet and statement of comprehensive income rather than in the statement of income. For the first quarter of 2010, Transat recorded a $15.0 million gain ($10.4 million after income taxes) on these foreign currency hedging instruments, compared with a $34.0 million loss ($21.9 million after income taxes) in 2009.
Commercial paper—Results for the quarter include a $3.5 million gain ($3.5 million after income taxes) from the Corporation’s investments in asset-backed commercial paper (ABCP). In 2009, the gain on ABCP investments was $3.8 million ($3.1 million after income taxes). As of January 31, 2010, the total accumulated provision represented 42.7% of the notional amount of the Corporation’s $127.7 million in ABCP investments.
Before these non-cash and non-operating items, Transat posted an adjusted after-tax loss of $18.2 million for the first quarter 2010 ($0.48 per share on a diluted basis).
Transat A.T. Inc. is an integrated international tour operator with more than 60 destination countries and that distributes products in over 50 countries. A holiday travel specialist, Transat operates mainly in Canada and Europe, as well as in the Caribbean, Mexico and the Mediterranean Basin. Montreal-based Transat is also active in air transportation, accommodation, destination services and distribution. (TSX: TRZ.B, TRZ.A)
NOTES
The following are non-GAAP financial measures used by management as indicators to evaluate ongoing and recurring operational performance.
(1) MARGIN (OPERATING LOSS): Revenues less operating expenses
(2) ADJUSTED INCOME (LOSS): Income before income taxes, non-controlling interest in business units’ results, impact of fuel hedge accounting and ABCP revaluation.
(3) ADJUSTED AFTER-TAX INCOME (LOSS): Net income before impact of fuel hedge accounting and ABCP revaluation.
Conference call
First quarter 2010 conference call: Thursday, March 11, 2010, 2.30 p.m. Dial 1 877 461-2815 or 514 392-1478. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 408-3053 or 514 861-2272, access code 6083043 pound sign, until April 9, 2010.
Non-GAAP measures
Transat prepares its financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”). We will occasionally refer to non-GAAP financial measures in the news release. These non-GAAP financial measures do not have any meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. They are furnished to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with GAAP. All amounts are in Canadian dollars unless otherwise indicated.
Caution regarding forward-looking statements
This news release contains certain forward-looking statements regarding the Corporation’s expectation that the assumptions used in the valuation of the ABCP securities will materialize, and that travel reservations will follow the trends. In making these statements, the Corporation has assumed that the trends in reservations, fuel prices and other costs will continue and that the margins (EBITDA) in dollars will be affected by competition and an economic slowdown. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by the forward-looking statements contained in this press release. Factors that could lead actual results to differ include, among others, extreme weather conditions, war, terrorism, market and general economic conditions, disease outbreaks, demand fluctuations related to seasonality in the travel industry, ability to reduce operating costs and workforce, labour relations, collective agreements and labour conflicts, issues related to pensions, exchange rate, interest rates, future funding, evolution of legal environment, introduction of unfavourable regulations, lawsuits and legal challenges, and other risks detailed from time to time in the Corporation’s continuous disclosure documents.
These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements. The Corporation considers the assumptions on which these forward-looking statements are based to be reasonable, but cautions the reader that these assumptions regarding future events, many of which are beyond its control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect the Corporation. For additional information with respect to these and other factors, see the Annual Information Form and Annual Report for the year ended October 31, 2009, filed with Canadian securities commissions. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by securities laws.