Amid a drop in demand for U.S. travel, leisure airline Transat AT Inc. TRZ-T hopes to ride a wave of demand for trips to South America, Mexico and Europe, even as competition on those routes heats up.
But Montreal-based Air Transat’s bid to maintain profitability faces a particularly stiff challenge from domestic and foreign rivals on transatlantic routes, chief executive officer Annick Guérard said.
“If we look at Europe from September and October, pricing from the competition has been extremely aggressive since mid-August, and that is why we have been seeing a trend downward” in per-passenger earnings, Ms. Guérard said on a financial-results conference call with analysts Thursday.
“The shift in supply created a more challenging environment for European destinations in our peak season, but we have been able to hold our ground.”
Still, Transat’s yields, a measure of per-passenger profitability, are slipping lately and planes are less full. This, coupled with overall inflation, which is eating into consumers’ discretionary spending, has put Ms. Guérard on cautious footing in the coming quarters.
Trips to the U.S. from Canada fell 33 per cent in the summer on a year-over-year basis, Statistics Canada says, as Canadians showed their disapproval of President Donald Trump’s tariffs and threats to annex the country.
Transat’s limited exposure to the U.S. – its only U.S. destinations are Fort Lauderdale and Orlando – has insulated it against the drop in demand for travel there.
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But competitors are rushing to meet demand for overseas flights, including Virgin Atlantic and discount carrier French Bee, which have added flights to Europe from Canada.
Transat has responded to the shift away from the U.S. by adding routes to the Middle East, Asia and Africa, as well as flights to Istanbul and Rio de Janeiro. The carrier has added 14 new destinations for the winter, a rise in seat capacity of as much as 7 per cent.
This increase is aided by the return to service of Transat’s Airbus A321 planes involved in a recall of Pratt & Whitney engines.
“We currently have a fleet of 43 aircraft, of which six are grounded due to the ongoing Pratt & Whitney engine issue,” Ms. Guérard said. “We expect that number to gradually improve for the upcoming winter season. Needless to say, this burden has significantly affected our performance for over two years now.”
On Thursday Transat said it had swung to a profit in the third quarter, buoyed by debt restructuring and higher airfares.
It posted a profit of $399.8-million, or $9.97 a share, compared with a loss of $39-million ($1.03) in the same period last year. Much of the profit was the result of a one-time gain of $345-million in debt restructuring.
For the three months ended July 31, Transat’s revenue rose 4 per cent year-over-year to $766-million as traffic increased by 1 per cent. Cash-flow burn was reduced to $122-million from $168-million.
Ms. Guérard attributed the better results to improved revenues and fuel costs coupled with control of expenses.
Transat was a recipient of government bailouts in the pandemic, when disease and travel restrictions halted most air travel.
The airline’s long-term debt and deferred government grant balance was $383-million in the quarter, compared with $801-million a year ago. Transat said it renegotiated its credit facility, restructured its debt and repaid the full $41-million owed under one program.
“Closing our refinancing agreement during the third quarter was a key milestone in achieving our objectives of reducing debt and strengthening our balance sheet,” Ms. Guérard said.