People look on as an Air Transat plane takes off in Montreal, Sunday, June 11, 2023. The airline’s share price traded around $3 on Thursday morning on the Toronto Stock Exchange, down 21 per cent this year.Graham Hughes/The Canadian Press
Airline and tour operator Transat AT Inc. TRZ-T posted a deeper loss for the second quarter as an aircraft engine recall grounded part of its fleet and drove costs higher.
Montreal-based Transat, parent of Air Transat, blamed its second-quarter loss on the problems with Pratt and Whitney engines, tougher competition, union strike threats and an economic slowdown spurred by a broader affordability crisis. For the summer ahead, Transat has trimmed its capacity expansion by two percentage points to 11 per cent over last year. The load factor, a measure of how full a plane is, will drop by two percentage points, the company said, although it declined to provide a specific forecast.
“It is clear that this year is a challenging one for Transat,” said Annick Guérard, chief executive officer. “We are facing multiple external factors, some beyond our control.”
In the three months ended April 30, Transat lost $54-million, or $1.40 a share, compared with a loss of $29-million (76 cents a share) in the same quarter of 2023. Revenue rose by 12 per cent, to $973-million, from a year ago. However, revenue measured per passenger-mile fell by 7.5 per cent.
Transat has 16 Airbus A321LRs – and another three due to enter service shortly – some of which are powered by the Pratt & Whitney PW1100G engine that has been recalled. Three of Transat’s A321s have been grounded recently, forcing the airline to lease three Airbus A330s to make up for lost capacity. Transat has an all-Airbus fleet of 43 planes and employs more than 5,000 people.
Transat said the costs of the new leases coupled with added capacity helped drive up operating expenses by 16 per cent or $137-million for the quarter. Ms. Guérard said on a conference call with analysts on Thursday that the Airbus groundings forced Transat to reduce flights to Los Angeles, San Francisco and parts of Europe.
Jean-François Pruneau, Transat’s chief financial officer, said the company is in compensation talks with Pratt and Whitney over the engine problems, which promoted a global recall.
Rival Air Canada said in May it was also seeking compensation from Connecticut-based Pratt and Whitney over the recall, which grounded seven of its Airbus A220s.
Employee salaries and benefits rose by 30 per cent amid a hiring spree to back Transat’s expansion plans. Fuel costs, Transat’s third-biggest expense, declined by 2 per cent to $150-million, from the same quarter in 2023.
James McGarragle, a stock analyst at Royal Bank of Canada, said Transat’s results came in below expectations.
The airline’s flight attendants accepted a new collective agreement in February, after rejecting two earlier offers, ending a strike threat that created uncertainty for passengers.
Transat said it renegotiated its emergency loan repayment from the federal government, extending the due date on $41-million by 10 months to February, 2026. Transat also received a credit facility worth $338-million from the government to support its operations during the pandemic. This amount bears interest of 8 per cent this year, and 10 per cent next year.
Mr. Pruneau said Transat is in talks with the government, its biggest creditor, and is confident they will agree on a plan that will work for the airline. Transat owes $646-million in long-term debt, and has reduced its total debt by $114-million since October. He said the Bank of Canada’s recent reduction in the overnight lending rate will provide some relief.
“That being said, there is no magic,” he said. “Free cash flow is the magic.”
Transat in May withdrew its margin forecast for the year, and said it was not likely to meet it. Transat cited the “downward pressure” on revenue because of the Pratt & Whitney engine groundings and fallout from union strike threats.
The airline’s shares closed at $2.90 Thursday on the Toronto Stock Exchange, down 12 cents on the day. The stock is down more than 24 per cent this year.
Transat and Toronto’s Porter Airlines have begun a joint venture that allows customers to book direct or connecting flights with either company. The partnership, for flights starting on June 13, widens Transat’s reach in Central Canada and the United States, while giving Porter customers access to Europe and holiday destinations.