Canadian dollar drags Transat to loss despite more winter travel

Transat A.T. says the lower loonie is offsetting any financial gains that may have come from more Canadians flying south to escape this winter's particularly harsh weather.

The Quebec-based airline and package tour operator said the sharp currency change in December and January accelerated its losses in the first quarter and will linger through the rest of the winter, a key part of its fiscal year. 

Transat lost $25.6 million or 67 cents per share in the three months ended Jan. 31, compared with a net loss of $15.1 million or 39 cents in the same year-earlier period.

Revenues increased 5.1 per cent to $847.2, compared with $805.7 million a year earlier.

Excluding one-time items, Transat lost $23.3 million or 60 cents per share in the quarter, compared with a loss of $21.6 million or 56 cents per share a year earlier. Analysts had on average expected adjusted losses would be 45 cents per share.

Transat shares plunge

Following the earnings report, Transat's shares fell dramtically, closing down 17.3 per cent, or $1.91, at $9.10 in Thursday trading on the Toronto Stock Exchange.

Transat said the weaker dollar increased operating expenses by 2.7 per cent or $14 million, mainly for hotel and fuel costs that are largely paid for in U.S. dollars.

"We would have cut the losses by half" without the currency hit, CEO Jean-Marc Eustache said Thursday.

Meanwhile, Transat said it also expects its second-quarter results to be weaker than last year, despite the imposition Jan. 27 of a $35 currency surcharge on holiday packages that could generate $10.5 million in revenue over the winter.

If the currency remains at its current value, the company expects to take a $40-million hit in the winter period as overall expense increase 3.7 per cent next or current quarter.

Eustache said the surcharge has had no impact on consumer demand, especially as people seek to head to sun destinations.

"It's clear that the colder it is and the more it snows...the more people want to leave," he told reporters after the company's annual meeting in which former Quebec finance minister Raymond Bachand was elected to the board.

"The worse the winter is the happier I am," said Eustache, who joked he prayed hard for snow.

The surcharge will continue through the summer but will not apply to fares purchased without hotels.

David Tyerman of Canaccord Genuity said Transat continues to perform well below potential.

"The company should not continue to lose significant money in the winter for the long term," he wrote in a report which said the potential for a turnaround was "very significant."

"However, the probability and timing of such recovery remain unclear at this point."

The analyst said the impact of Air Canada Rouge's 15 per cent increase in capacity on leisure transatlantic routes this summer is unclear, although early data suggests the downside may not be significant.

Eustache said he sees little impact as fares are up five per cent.

During the quarter, North American operations lost $25 million despite a 4.6 per cent increase in revenues. The European segment lost $8.6 million on a 8.7 per cent rise in revenues.

Despite the weaker results, Benoit Poirier of Desjardins Capital Markets said higher average selling prices in most markets and a positive outlook for the summer is positive despite the weaker loonie.

"We like management's disciplined approach to achieving superior margins by focusing on capacity management and higher selling prices," he wrote in a report.

Transat A.T., with about 6,500 employees, is an integrated international tour operator offering packaged holidays to more than 60 countries, although it operates mainly in Europe, the Caribbean, Mexico and the Mediterranean Basin. It also operates Air Transat.