Montreal-based airline and tour company Transat AT Inc.’s second-quarter loss deepened amid pandemic-related flight cancellations and soaring fuel prices.
Fuel prices rose 76 per cent in the quarter, helping to send the airline operator to a loss of to $98-million or $2.60 a share, compared with a loss of $69-million or $1.84 a year earlier. Driven by the war in Ukraine, jet fuel has risen by 150 per cent over the past year, said OAG, a British-based aviation data company.
Patrick Bui, Transat’s chief financial officer, said the surge in fuel prices is the biggest risk faced this summer by the company as it sees customers return while the pandemic appears to be easing.
Transat in June began a fuel hedging program to reduce the risk of further increases in the price of oil, Mr. Bui told analysts on a conference call held to discuss financial results. Seat prices for the summer have also been raised by an unspecified amount.
Transat’s adjusted April profit would have been positive for the first time in two years if fuel costs had not increased so much, Mr. Bui said.
Fuel hedging is a technique companies use to reduce their exposure to rising energy costs, and to establish fixed prices in the future. Mr. Bui declined to provide details on the amount or prices Transat has hedged.
OAG said jet fuel prices vary by continent, and are highest in North America, which accounts for 39 per cent of world consumption. In May, a barrel of jet fuel cost US$176, after rising as high US$200.
Fuel is one of an airline’s biggest expenses, along with labour. In North America, airlines will pay a combined US$115-billion for fuel in 2022, according to International Air Transport Association.
In the second quarter, Transat’s revenue rose to $358.2 million, compared with $7.6-million in the year-ago period, when the pandemic halted its operations.
In the most recent quarter, sales were hit by a drop in demand and customer cancellations after the Omicron variant struck and the federal government imposed new travel restrictions. Transat cancelled 30 per cent of its flights in January and February.
Annick Guerard, Transat’s chief executive officer, said the company is managing the higher costs by raising prices, reducing costs and adding fuel-efficient Airbus passenger jets. Transat said it was spending monthly cash reserves of $3-million, down from $27-million in the previous quarter. Cash burn is expected to rise as the airline prepares for a busier summer. To survive the pandemic, Transat signed an agreement that allows it to borrow as much as $743-million from the government.
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