Profitability indicators are in the red at Transat while the leisure travel specialist is struggling on several fronts. It’s not easy, recognizes its president and CEO, Annick Guérard.
“It’s a year full of challenges,” she said Thursday in a conference call with analysts to discuss second-quarter results. We face things that are beyond our control, but [in other places] we can make a difference.”
The parent company of Air Transat warned on May 10 that pressure on ticket prices, union unrest and planes grounded due to engine problems would cut its wings.
Despite an increase in its revenues, the Quebec company widened its net loss during the months of February, March and April. Unit air revenues – a key indicator of performance in the airline industry – contracted by 7.5% during the second quarter.
This performance is partly attributable to pressure on ticket prices, according to Transat. Travelers still have a taste for foreign getaways, but more and more people are thinking twice before untying the purse strings.
“Canadians continue to feel the impact of inflation and high interest rates,” said Ms. Guérard. Some people postpone their spending. There has been a significant increase in capacity [in the industry]. The demand is there, but the growth rate is not as vigorous as last year. »
Transat initially planned to increase its capacity by 19% this year. After lowering its target to 13%, the blue star company now sets it at 11%. Looking ahead to the summer season, its aircraft load factor is currently 2.1 percentage points lower than the same period a year ago.
For their part, unit air revenues are down 8%.
The last few months have been turbulent for the air carrier and tour operator.
After the specter of a strike by its 2,100 flight attendants, Transat sees several of its Airbus A321LRs – the single-aisle aircraft at the heart of its strategy – grounded due to premature wear of the engines built by Pratt
Several air carriers are affected by this problem. Some PW1100G-JM parts were manufactured with contaminated metal powder that could cause cracking. Four of Transat’s 16 A321LRs are currently stuck in the workshop due to this situation. This number is expected to rise to six later this year and increase to eight in 2025.
The company has leased three A330s to dampen the shaking, but that is driving up its costs. It is also expecting delivery of three more A321LRs by the summer.
“The stabilization of demand from its unsustainable (in our opinion) strength last year appears to be occurring more quickly than expected,” says analyst Tim James of TD Bank. Engine availability increases inefficiencies and competition, another headwind. »
Meanwhile, while waiting to find a way to refinance its heavy debt, Transat was able to obtain some respite following negotiations with the federal government, which had lent it several hundred million in 2021 to help it get through the COVID-19 pandemic.
The company will have until next February – ten more months – to repay a debt of 91 million. The company also repaid another $36 million loan during the second quarter.
At National Bank Financial, analyst Cameron Doerksen believes that this plan risks resulting in an issuance of securities, which risks resulting in “a significant dilutive effect” for existing shareholders of the airline and tour operator.
On Thursday afternoon, on the Toronto Stock Exchange, Transat shares fell three cents, or 1%, to trade at $2.99.