Transat A.T. Inc. Reports Results for the First Quarter of Fiscal 2024

Solid increase in traffic and further debt reduction

First-quarter highlights:

• Revenues of $785.5 million, up 17.7% from $667.5 million last year
• Negative adjusted EBITDA¹ of $8.6 million, compared to adjusted EBITDA¹ of $3.3 million last year
• Net loss of $61.0 million ($1.58 per share), versus $56.6 million ($1.49 per share) last year
• Positive free cash flow¹ of $39.1 million, compared to $144.2 million last year
• Proceeds from the sale of an investment in Mexico applied to reduce secured facilities by $20.7 million
• Record customer deposits for future travel of $1,026.9 million, up 14% from January 31, 2023

MONTREAL, March 14, 2024 /CNW/ - Transat A.T. Inc., a leisure travel reference worldwide, operating as an air carrier under the Air Transat brand, announced today its results for the First Quarter ended January 31, 2024.

"Transat's first-quarter results reflect sustained demand for leisure travel. Revenues grew 17.7% year-over-year, driven by a solid traffic increase. However, the persisting speculation of a strike by flight attendants starting last November clearly affected bookings and yield for the winter season, and we are pleased that the adoption of a new collective agreement in late February removed this uncertainty. As for the operating challenges related to the Pratt & Whitney GTF² engine issue, costs incurred, including those related to the temporary leasing of additional aircraft, applied pressure on profitability. Finally, while demand remains sound, softer yields indicate heightened consumer price sensitivity in the current macro-economic environment as well as fierce price competition, especially in the Toronto market," said Annick Guérard, President and Chief Executive Officer of Transat.

"In recent months, several industry-wide supply chain challenges, including the Pratt & Whitney GTF engine issue, have resulted in higher costs and the need to make certain capacity modifications going forward. These adjustments should limit capacity expansion to 13% in fiscal 2024, still representing a healthy increase compared to 2023. Accordingly, we now expect an adjusted EBITDA¹ margin for the full year 2024 to be at the lower end of the range announced last December. Finally, the refinancing plan remains the organization's top priority and discussions with stakeholders continue," added Jean-François Pruneau, Chief Financial Officer of Transat.

______________________________

²Geared turbofan ("GTF").¹

First-quarter Results

For the three-month period ended January 31, 2024, revenues reached $785.5 million, up 17.7% from $667.5 million in the corresponding period a year ago. The increase reflects sustained demand for leisure travel driven by a 20% increase in traffic expressed in revenue-passenger-miles (RPM). However, this increase was mitigated by persistent speculations throughout the quarter about a potential strike by the flight attendants. Company-wide capacity was up 25% from last year, while airline unit revenues (yield) was down 3.1%.  

Negative adjusted EBITDA¹ stood at $8.6 million, compared with an adjusted EBITDA¹ of $3.3 million a year ago. The variation is mainly due to higher operating expenses associated with capacity expansion, such as increases in the cost of providing tourism services, wages and benefits, and aircraft-related expenses, the latter also including, among other things, (i) costs related to the operating challenges caused by the Pratt & Whitney GTF engine issue and (ii) an unfavorable year-over-year aircraft maintenance calendar due to the low aircraft utilization during the pandemic. These factors were partially offset by lower fuel expenses reflecting a price decline of 18% compared to last year.

Cash flow and financial position

Cash flow from operating activities amounted to $110.7 million during the First Quarter of 2024, compared with $195.1 million for the same period last year, due to a less favorable net change in non-cash working capital balances and to a greater operating loss this year. After accounting for investing activities and repayment of lease liabilities, free cash flow¹ reached $39.1 million during the quarter, versus $144.2 million a year earlier.

As at January 31, 2024, cash and cash equivalents amounted to $453.3 million, compared to $467.7 million at the same date in 2023 and $435.6 million as at October 31, 2023. Cash and cash equivalents in trust or otherwise reserved mainly resulting from travel package bookings improved year-over-year reaching $612.2 million as at January 31, 2024, compared with $523.8 million at the same date in 2023.

Reflecting sound demand, customer deposits for future travel stood at an all-time record level of $1,026.9 million as at January 31, 2024, up 14% from January 31, 2023.

During the quarter, the Corporation completed the previously announced sale of an investment in a hotel in Mexico and proceeds were applied to reduce secured facilities by $20.7 million. Following this repayment, long-term debt and deferred government grant, net of cash, amounted to $352.3 million as at January 31, 2024, down from $375.3 million a year ago and from $380.1 million as at October 31, 2023.

Outlook

Early trends for the summer season indicate bookings and pricing conditions that are largely in line with the same period last year. However, as the Corporation does not foresee the same uplift in yields that was exhibited throughout the summer season last year, it will remain proactive in managing costs under its control, while actively seeking to mitigate the structural cost increases affecting the industry.

Given the current operating environment, the Corporation revised its fiscal 2024 capacity expansion plans to 13%, versus 19% previously.

Reflecting the above, the Corporation now expects its adjusted EBITDA¹ margin for the full year 2024 to be at the lower end of the range of 7.5% to 9.0% announced last December. In making these forward-looking statements, the Corporation used the following assumptions for the fiscal year: weak GDP growth in Canada, an exchange rate of C$1.34 to US$1 and an average price per gallon of jet fuel of C$4.00. 

Conference call

First-quarter 2024 conference call: Thursday, March 14, 10:00 a.m. To join the conference call without operator assistance, you may register and enter your phone number here to receive an instant automated call back.

You can also dial direct to be entered into the call by an operator:
Montreal: 514-225-7344
North America (toll-free): 1-888-390-0620
Name of conference: Transat
The conference will also be accessible live via webcast: click here to register. 

An audio replay will be available until March 21, 2024, by dialing 1 888 390-0541 (toll-free in North America), access code 776189 followed by the pound key (#). The webcast will remain available for three months following the call.

Second-quarter 2024 results will be announced on June 6, 2024.

(1) Non-IFRS financial measures

Transat prepares its financial statements in accordance with International Financial Reporting Standards ["IFRS"]. We will occasionally refer to non-IFRS financial measures in the news release. These non-IFRS financial measures do not have any meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They are intended to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with IFRS. All dollar figures are in Canadian dollars unless otherwise indicated.

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

Adjusted operating income (loss) or adjusted EBITDA: Operating income (loss) before depreciation, amortization and asset impairment expense, reversal of impairment of the investment in a joint venture, restructuring and transaction costs and other significant unusual items, and including premiums related to derivatives that matured during the period. The Corporation uses this measure to assess the operational performance of its activities before the aforementioned items to ensure better comparability of financial results.
Adjusted pre-tax income (loss) or adjusted EBT: Income (loss) before income tax expense before change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain on disposal of investment, gain (loss) on asset disposals, restructuring and transaction costs, write-off of assets, reversal of impairment of the investment in a joint venture, foreign exchange gain (loss) and other significant unusual items, and including premiums related to derivatives that matured during the period. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results.
Adjusted net income (loss): Net income (loss) before change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain on disposal of investment, gain (loss) on asset disposals, restructuring and transaction costs, write-off of assets, reversal of impairment of the investment in a joint venture, foreign exchange gain (loss), reduction in the carrying amount of deferred tax assets and other significant unusual items, and including premiums related to derivatives that matured during the period, net of related taxes. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results. Adjusted net income (loss) is also used in calculating the variable compensation of employees and senior executives.
Adjusted net earnings (loss) per share: Adjusted net income (loss) divided by the adjusted weighted average number of outstanding shares used in computing diluted earnings (loss) per share.
Free cash flow: Cash flows related to operating activities less cash flows related to investing activities and repayment of lease liabilities. The Corporation uses this measure to assess the cash that's available to be distributed in a discretionary way such as repayment of long-term debt or deferred government grant or distribution of dividend to shareholders.
Total debt: Long-term debt plus lease liabilities, deferred government grant and liability related to warrants, net of deferred financing costs related to the unsecured debt - LEEFF. Management uses total debt to assess the Corporation's debt level, future cash needs and financial leverage ratio. Management believes this measure is useful in assessing the Corporation's capacity to meet its current and future financial obligations.
Total net debt:Total debt (described above) less cash and cash equivalents. Total net debt is used to assess the cash position relative to the Corporation's debt level. Management believes this measure is useful in assessing the Corporation's capacity to meet its current and future financial obligations.

Additional Information

The results were affected by non-operating items, as summarized in the following table: 

Highlights and non-IFRS financial measures

Highlights and non-IFRS financial measures
	First quarter
	2024	2023
(in thousands of Canadian dollars, except per share amounts)	$	$
Operating loss	(52,429)	(38,103)
Depreciation and amortization	50,164	41,108
Reversal of impairment of the investment in a joint venture	(3,112)	—
Restructuring costs	66	2,900
Premiums related to derivatives that matured during the period	(3,314)	(2,574)
Adjusted operating income (loss)^1	(8,625)	3,331
Net loss	(60,977)	(56,610)
Reversal of impairment of the investment in a joint venture	(3,112)	—
Restructuring costs	66	2,900
Change in fair value of derivatives	22,159	9,921
Revaluation of liability related to warrants	11,747	10,139
Foreign exchange gain	(42,127)	(22,829)
Gain on disposal of an investment	(5,784)	—
Gain on asset disposals	—	(2,511)
Premiums related to derivatives that matured during the period	(3,314)	(2,574)
Adjusted net loss^1	(81,342)	(61,564)
Adjusted net loss^1	(81,342)	(61,564)
Adjusted weighted average number of outstanding shares used in computing diluted      earnings per share	38,580	38,065
Adjusted net loss per share^1	(2.11)	(1.62)
Cash flows related to operating activities	110,702	195,088
Cash flows related to investing activities	(28,745)	(10,481)
Repayment of lease liabilities	(42,864)	(40,457)
Free cash flow^1	39,093	144,150

			As at January 31, 2024	As at October 31, 2023
(in thousands of dollars)			$	$
Long-term debt			665,104	669,145
Deferred government grant			140,480	146,634
Liability related to warrants			32,563	20,816
Lease liabilities			1,138,407	1,221,451
Total debt^1			1,976,554	2,058,046
Total debt			1,976,554	2,058,046
Cash and cash equivalents			(453,286)	(435,647)
Total net debt^1			1,523,268	1,622,399

About Transat

Founded in Montreal 36 years ago, Transat has achieved worldwide recognition as a provider of leisure travel particularly as an airline under the Air Transat brand. Voted World's Best Leisure Airline by passengers at the 2023 Skytrax World Airline Awards, it flies to international destinations. By renewing its fleet with the most energy-efficient aircraft in their category, it is committed to a healthier environment, knowing that this is essential to its operations and the destinations it serves. Transat has been Travelife-certified since 2018. (TSX: TRZ) www.transat.com

Caution regarding forward-looking statements

This news release contains certain forward-looking statements with respect to the Corporation, including those regarding its results, its financial position and its outlook for the future. These forward-looking statements are identified by the use of terms and phrases such as "anticipate" "believe" "could" "estimate" "expect" "intend" "may" "plan" "potential" "predict" "project" "will" "would", the negative of these terms and similar terminology, including references to assumptions. All such statements are made pursuant to applicable Canadian securities legislation. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions. Forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements.

The forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, economic conditions, changes in demand due to the seasonal nature of the business, extreme weather conditions, climatic or geological disasters, war, political instability, real or perceived terrorism, outbreaks of epidemics or disease and the lingering effects of the COVID-19 pandemic, consumer preferences and consumer habits, consumers' perceptions of the safety of destination services and aviation safety, demographic trends, disruptions to the air traffic control system, the cost of protective, safety and environmental measures, competition, maintain and grow its reputation and brand, the availability of funding in the future, the Corporation's ability to adequately mitigate the Pratt & Whitney GTF engine issues, fluctuations in fuel prices and exchange rates and interest rates, the Corporation's dependence on key suppliers, the availability and fluctuation of costs related to our aircraft, information technology and telecommunications, cybersecurity risks, changes in legislation, unfavourable regulatory developments or procedures, pending litigation and third-party lawsuits, the ability to reduce operating costs, the Corporation's ability to attract and retain skilled resources, labour relations, collective bargaining and labour disputes, pension issues, maintaining insurance coverage at favourable levels and conditions and at an acceptable cost, and other risks detailed in the Risks and Uncertainties section of the MD&A included in our 2023 Annual Report.

The reader is cautioned that the foregoing list of factors is not exhaustive of the factors that may affect any of the Corporation's forward-looking statements. The reader is also cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements.

The forward-looking statements in this news release are based on a number of assumptions relating to economic and market conditions as well as the Corporation's operations, financial position and transactions. Examples of such forward-looking statements include, but are not limited to, statements concerning:

• The outlook whereby the Corporation will be able to meet its obligations with cash on hand, cash flows from operations and drawdowns under existing credit facilities. 
  
  
• The outlook whereby the Corporation does not foresee the same uplift in yields that was exhibited throughout the summer season last year, it will remain proactive in managing costs under its control, while actively seeking to mitigate the structural cost increases affecting the industry. 
  
  
• The outlook whereby the Corporation now expects its adjusted EBITDA ¹margin for the full year 2024 to be at the lower end of the range of 7.5% to 9.0%.
  
  
• The outlook whereby the Corporation revised its fiscal 2024 capacity expansion plans to 13%, versus 19% previously.

In making these statements, the Corporation assumes, among other things, that the standards and measures for the health and safety of personnel and travellers imposed by government and airport authorities will be consistent with those currently in effect, that workers will continue to be available to the Corporation, its suppliers and the companies providing passenger services at the airports, that credit facilities and other terms of credit extended by its business partners will continue to be made available as in the past, that management will continue to manage changes in cash flows to fund working capital requirements for the full fiscal year and that fuel prices, exchange rates, selling prices and hotel and other costs remain stable, and the Corporation will be able to adequately mitigate the Pratt & Whitney GTF engine issues. 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.

The Corporation considers that the assumptions on which these forward-looking statements are based are reasonable.

These statements reflect current expectations regarding future events and operating performance, speak only as of the date this news release is issued, and represent the Corporation's expectations as of that date. For additional information with respect to these and other factors, see the MD&A for the quarter ended January 31, 2024 filed with the Canadian securities commissions and available on SEDAR at www.sedarplus.ca. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities legislation.

www.transat.com

SOURCE Transat A.T. Inc.