Winter travel costs on the rise as Transat also contemplates currency surcharge

MONTREAL – Canadians will be paying more to escape to sunshine destinations this season as tour operator Transat (TSX:TRZ.B) says prices are running five per cent higher than last year.

The tour operator is also contemplating a new surcharge to compensate for the falling Canadian dollar.

Chief executive Jean-Marc Eustache said Thursday that he likes rival Sunwing’s musing about imposing a surcharge of $25 to $30.

“We’ll look at it and make a decision,” he said during a conference to discuss the company’s stronger results in the fourth quarter and full year.

Eustache wouldn’t say how soon a surcharge could be added he but doubted its imposition would spur a consumer backlash.

“When the price is $1,500 and tomorrow we put a surcharge of $25 I don’t think … the consumer will say, ‘Oh no I will not travel for 25 bucks,'” he said.

Transat says it has sold 41 per cent of its winter vacation packages so far this year. Bookings are down a little from last year, but that could be due to economic uncertainty or consumers waiting in hopes of a last-minute deal, Eustache said.

Capacity is three per cent higher than last year.

Canada’s largest tour operator expects to have a better winter season, provided the Canadian dollar doesn’t drop dramatically from its current level of 95 cents compared to the U.S. greenback.

Transat said cost-cutting efforts and higher selling prices helped it record its best fourth quarter and summer season yet and handily beat analyst forecasts.

The Montreal-based travel company said its net profit surged to $54.7 million or $1.40 per diluted share for the period ended Oct. 31, compared with $16.6 million or 43 cents a year ago.

The company, which operates the Air Transat airline, said its profits soared in the quarter due to a strong summer transatlantic season despite some softness in Europe where results beat its main competitors.

Adjusting for one-time items it earned $1.40 per share for the quarter, which came in well above average analyst expectations of $1, according to a survey by Thomson Reuters.

Benoit Poirier of Desjardins Capital Markets said the results were positive and should prompt Transat’s stock rise.

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

On the Toronto Stock Exchange, Transat’s shares hit a new 52-week high of $14.70 and were up 49 cents of 3.63 per cent at $13.99 in midday trading.

Revenues for the quarter came in at $808.6 million versus $763.4 million.

Last summer Transat cut capacity from Canada which caused the number of passengers to decline by five per cent. The move resulted in higher margins driven by higher selling prices and cost reduction initiatives.

For the year, Transat had a profit of $58 million or $1.51 per diluted share, compared with a net loss of $16.7 million or 44 cents per diluted share in 2012.

Annual revenues were $3.6 billion, down from $3.7 billion.

Transat expects to realize more than $75 million in EBITDA improvement from cost-reduction initiatives, additional revenues and efficiency gains. It has realized $35 million benefit so far and expects to add at least $20 million in each of the next two years.