International getaways and to sun destinations are still popular with consumers, but Transat A. T. notes that they are starting to be more attentive to deals because the economic slowdown is increasing pressure on discretionary income.
“Clearly, people are looking to get the best possible value for money,” says the president and CEO of the leisure travel specialist, Annick Guérard. We have observed a slowdown in price growth compared to last year and we believe this trend will continue in 2024 due to the economic environment and high interest rates. »
The parent company of Air Transat ended its financial year on a good note by posting a net profit on Thursday at the end of the fourth quarter ending October 31. This is the second consecutive quarter where the Quebec company has reaped profits. The threat of a strike by flight attendants has also been ruled out.
Ms. Guérard anticipates a form of return to normal in 2024 in terms of price growth after a year where the phenomenon of “revenge tourism” – a strong return of travelers after the pandemic interruption – continued to materialize.
This can be seen in revenue growth per passenger mile, which is slowing to 2.4% ahead of the winter season. When the third quarter results were published, the return on this indicator was up 7%, recalls analyst Cameron Doerksen of National Bank Financial. For their part, load factors show a decline of 1.3 percentage points compared to those for the 2023 financial year.
“Considering that we plan to increase our capacity by 19% next year, this is an excellent result,” underlined Ms. Guérard, in a conference call with financial analysts.
There is also more competition in the sun destination niche. The firm Cirium, which tracks data in the airline industry, forecasts that the capacity of the Canadian market is increasing by 19% in this niche in preparation for the holiday season.
Low-cost carriers, like Flair Airlines, are going on the offensive.
“It may be difficult for them to gain market share,” believes the director of Transat. Our advantage is that we can offer all-inclusive packages, which they do not have. This is what consumers are looking for. »
The National Bank Financial analyst is more cautious.
“If passenger-mile revenues (of Transat) remain positive, there has been a shift which we attribute to fiercer competition towards sun destinations,” writes Mr. Doerksen, in a note.
In addition to consumers’ disposable income, Transat has identified a few “headwinds” that could slow down its recovery in 2024. There is one that, however, dissipated during the presentation of the fourth quarter results: a possible strike by some 2,100 flight attendants based in Montreal and Toronto.
An agreement in principle was reached between the company and the Canadian Union of Public Employees (CUPE). The agreement must be presented to union members in the “coming days”. The extent of the salary increases has therefore not been specified. This will have no impact on Transat’s forecast, which expects to see its adjusted operating profit margin oscillate between 7.5% and 9% next year, assures Ms. Guérard.
The blue star company will, however, be caught up by a premature wear problem affecting the Pratt engines.
Three of the 15 A321LRs operated by Transat are currently grounded due to inspections that the engine manufacturer must carry out. By the end of fiscal 2024, up to six aircraft could be out of service due to this situation.
The leisure travel specialist nevertheless has a contingency plan. It will receive four new A321LRs between April and June. It has also extended leases on some aircraft, is looking at replacement engines and is evaluating short-term leasing options.
“We work closely with Pratt
Furthermore, as part of an effort to reduce its debt, Transat has reached an agreement to sell its 50% stake in Marival Armony Luxury Resort, in Mexico, to its co-owner, the Marival Group. The sale price is around 21 million.
On Thursday afternoon on the Toronto Stock Exchange, the company’s stock was trading at $3.66, down seven cents, or 1.9%.