Transat vows to turn profit this year, concerned about Rouge plans for Europe

MONTREAL – Transat’s chief executive says he’s focused on returning to profitability this year but is concerned about the long-term impact on its key European business from additional competition by Air Canada’s new low-cost carrier.

“For me, a year from now is a long time. I’m more concerned to have a good winter and a good summer to put Transat back in the black,” said Jean-Marc Eustache Thursday after the tour company’s annual meeting.

Eustache said he’s not too concerned about Air Canada’s (TSX:AC.B) plans to shift 29 narrow body A319s to sun destinations by the end of 2014 because they already operate to the Caribbean and Mexico. But the country’s largest airline plans to shift 13 Boeing 767 wide bodies to its new carrier, Air Canada Rouge, after taking delivery of Boeing 787s does present challenges.

“For the big aircraft, the 767, we are very concerned about that for sure because like the president (Calin Rovinescu) said, he’s going to go after Air Transat,” said Eustache. “He said that very clearly he was going after our market so for sure I’m concerned about that.”

Still, Eustache said Transat (TSX:TRZ.B) has faced competition on the lucrative summer routes to Europe before, pointing to a series of carriers like Nationair, Canada 3000 and Royal that have folded.

He added that recent upgrades to Air Transat’s planes and possible new routes will help it compete with Rouge.

Meanwhile, Transat has hired external advisers to help study whether to add narrow-body aircraft to its own fleet or continue to subcontract to Nova Scotia-based Canjet or another operator.

A decision is expected within weeks, a year before the deal with Canjet expires April 30, 2014.

Transat has won non-salary concessions from its employees if it decides to lease its own aircraft. Air Transat’s more than 1,700 flight attendants recently agreed to some $9-million in non-wage concessions to help it meet increasing competition in the holiday travel industry.

A key element will see the number of attendants on A330 airliners reduced to 10 from 11. The concessions by the flight attendants, pilots and others are part of moved by Transat to trim $20 million in annual operating costs.

Eustache wouldn’t say if he prefers to move the fleet in-house but denied that he was using concessions to extract a better deal from Canjet.

“I’m not using my employees to deal with Canjet or Canjet to deal with my employees,” he added.

Transat expects its second quarter results will be better than last year, when its net loss totalled $13.2 million and it posted a $26.2 million operating loss.

Eustache said Transat will make money this year.

“If we aren’t profitable, they will kick out the president with reason and replace him,” he said. “For sure, we will be profitable this year unless there is a catalytic problem I can’t foresee.”

Earlier, Transat reported a big improvement in its first-quarter results but the vacation tour operator remained mired in red ink as its revenue declined on reduced capacity.

The Montreal-based operator of Air Transat said its net loss for the three months ended Jan. 31 was $15.1 million or 39 cents per share on a diluted basis.

That almost halved its net loss of $29.5 million or 77 cents per share in the same fiscal 2012 period.

Revenue slid to $805.7 million from $829.3 million, down $23.6 million or 2.8 per cent.

Meanwhile, the company reported an adjusted after-tax loss of $21.6 million or 56 cents per share in the quarter, compared with $29.9 million or 79 cents in 2012.

Analysts had expected an adjusted loss of 48 cents per share, excluding a positive impact from fuel hedging activities

Ben Vendittelli of Laurentian Bank Securities said Transat’s improved performance is offset by the company’s mixed outlook.

“Transat’s improvement was below expectations (and the) outlook remains muddled,” he wrote in a report. “Transat’s improved year-over-year performance, though slightly below our expectations, was driven by good capacity management and higher pricing.”

Transat has cut its capacity to sun destinations in the seasonally strong second quarter by 10 per cent, while load factors are lower and pricing is higher.

Transat A.T. is an integrated international tour operator that offers package holidays to more than 60 destinations in some 50 countries, but operates mainly in Canada and Europe as well as the Caribbean, Mexico and the Mediterranean.

On the Toronto Stock Exchange, Transat’s shares lost 38 cents, or nearly six per cent, at $5.89 in Thursday afternoon trading.