For the second quarter:

• Revenues of $897.4 million.
• Operating loss of $19.8 million.
• Adjusted operating income¹ of $3.0 million
• Net income attributable to shareholders of $2.3 million.
• Adjusted net loss³ of $6.3 million.
• Letter of intent entered into with Air Canada on May 16, 2019 for the acquisition of the Corporation:
  • Exclusivity period up to the end of the 30-day due diligence review scheduled for June 26, 2019;
  • Undertakings and expenses relating to the hotel strategy restricted during this period.
• The Corporation took delivery of its first A321neoLR aircraft.

For the first six months:

• Revenues of $1.5 billion.
• Operating loss of $72.4 million.
• Adjusted operating loss¹ of $34.7 million.
• Net loss attributable to shareholders of $47.4 million.
• Adjusted net loss³ of $42.3 million.

MONTRÉAL, June 13, 2019 /CNW Telbec/ - Transat A.T. Inc. ("Transat" or the "Corporation"), one of the largest integrated tourism companies in the world and Canada's holiday travel leader, announces its results for the second quarter ended April 30, 2019.

"The second quarter is similar to the first in terms of results. We incurred a comparable increase in our costs resulting from fuel prices and exchange rates as well as fleet transition, and we ended the winter with a larger loss than last year. While the due diligence resulting from the letter of intent signed with Air Canada is also underway, we remain focused on achieving the improvements set out in our strategic plan. We remain confident about completing these initiatives if the transaction does not take place," said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

Second-quarter highlights

The Corporation posted revenues of $897.4 million for the quarter, up $30.3 million or 3.5% compared with 2018. This increase is attributable to higher average selling prices across all markets, combined with a 2.3% rise in the number of travellers in the sun destinations market, the Corporation's main market for the period, resulting from the decision to increase capacity in that market. The higher revenues were partially offset by a greater proportion of flight-only sales, which generate lower unit margins than packages.

Operations generated adjusted operating income¹ of $3.0 million, compared with $12.1 million in 2018, a decrease of $9.1 million. This change resulted primarily from the increase in fuel prices, combined with the weakening of the dollar against the U.S. dollar and the additional costs incurred for the transition and optimization of the Corporation's fleet, which in total exceeded the increase in the average selling prices of packages. Adjusted operating income¹ for 2019 includes expenses of $2.5 million related to the potential acquisition of the Corporation, comprising professional fees and adjustments to certain provisions related to stock-based compensation following the significant rise in the share price.

Net income attributable to shareholders amounted to $2.3 million or $0.06 per share (diluted), compared with $7.9 million or $0.21 per share (diluted) in 2018. For the second quarter of 2019, the net income attributable to shareholders includes the settlement of a litigation in the courts of the state of New York, in the United States; this amount was recorded as Special items in the consolidated statement of income. Excluding non-operating items, Transat reported an adjusted net loss³ of $6.3 million ($0.17 per share) for the second quarter of 2019, compared with $0.5 million ($0.01 per share) in 2018.

Six-month period highlights

The Corporation recognized revenues of $1.5 billion, up $29.4 million or 1.9% from 2018. The higher revenues recorded during the six-month period is mainly attributable to the increase in average selling prices across all markets, combined with a 2.8% rise in the number of travellers in the sun destinations market, the Corporation's main market for the period, resulting from the decision to increase capacity in that market. The higher revenues were partially offset by a greater proportion of flight-only sales, which generate lower unit margins than packages.

For the winter season, operations generated an adjusted operating loss¹ of $34.7 million compared with $16.6 million in 2018, a deterioration of $18.1 million. This change resulted primarily from the increase in fuel prices, combined with the weakening of the dollar against the U.S. dollar and the additional costs incurred for the transition and optimization of the Corporation's fleet, which in total exceeded the increase in the average selling prices of packages.

Net loss attributable to shareholders amounted to $47.4 million or $1.26 per share (diluted) compared with net income of $4.7 million or $0.13 per share (diluted) for the corresponding six-month period of last year. Net income for 2018 included a $31.3 million gain on the sale of the Corporation's subsidiary Jonview. Before non-operating items, Transat reported an adjusted net loss³ of $42.3 million ($1.13 per share) for the first six months of 2019, compared with $32.7 million ($0.87 per share) in 2018.

Financial position

As at April 30, 2019, cash and cash equivalents amounted to $796.3 million, compared with $903.3 million on the same date in 2018. This change resulted primarily from the purchase of land in Mexico ($75.7 million), from commissioning costs for aircraft added to the fleet ($19.9 million) and from the change in the calculation of cash and cash equivalents to be held in trust following the adoption of the new revenue recognition standard IFRS 15 ($13.3 million).

The working capital ratio was 1.24, compared with 1.41 as at April 30, 2018.

Deposits from customers for future travel amounted to $629.7 million, compared with $604.9 million as at April 30, 2018.

Off-balance-sheet agreements, excluding contracts with service providers, stood at $2.45 billion as at April 30, 2019, compared with $2.51 billion as at October 31, 2018. The $52.7 million decrease resulted primarily from repayments made during the six-month period, partially offset by the weakening of the dollar against the U.S. dollar,

IFRS update

On November 1, 2018, the Corporation adopted IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers. The 2018 comparative figures have been restated to reflect these changes.

In short, the adoption of these standards resulted in a $2.6 million increase in shareholders' equity as at October 31, 2017. For the quarter and six-month period ended April 30, 2018, the adoption of these standards resulted in increases in net income attributable to shareholders of $1.3 million and $4.6 million, respectively. The main changes related to the adoption of IFRS 9 and IFRS 15 are described in note 3 to the interim condensed consolidated financial statements for the quarter ended April 30, 2019.

Outlook

Summer 2019 – The transatlantic market outbound from Canada and Europe accounts for a substantial portion of Transat's business during the summer season. For the period from May to October 2019, the Corporation's capacity is higher by 1%. To date, 64% of the capacity has been sold, the load factors are higher by 0.7% compared with summer 2018 and selling prices of bookings taken are similar to those recorded at the same date in 2018. The impact of currency variations, combined with lower fuel costs in U.S. dollars, will not result in a significant increase in operating costs if aircraft fuel prices remain stable and the dollar remains at its current level against the U.S. dollar, the euro and the pound.

On the sun destinations market outbound from Canada, for which summer is low season, Transat's capacity is similar to the one deployed on the same date last year. To date, 60% of the capacity has been sold and load factors are comparable to those of 2018. Unit margins are currently higher compared with those recorded on the same date last year.

If the current trends hold, Transat expects its results for the third quarter to be slightly higher than those of last year. However, the Corporation believes it is still too early on in the season to draw conclusions regarding the fourth quarter given the number of seats and packages sold at this stage of the season.

Discussions relating to the sale of the Corporation and strategic plan

Following the April 30 announcement on discussions with more than one party regarding the potential sale of the Corporation, the Corporation announced on May 16 that a letter of intent was signed with Air Canada for the potential acquisition of the Corporation, with an exclusivity period extending until the end of a 30-day due diligence period.

Since due diligence officially began on May 27, the exclusivity period ends on June 26, 2019.

Investments in the hotel division have been slowed down, in accordance with the commitment made in the letter of intent. Work in this division is currently focused on preparing construction on the land in Puerto Morelos and reviewing future opportunities.

Meanwhile, work on other aspects of the strategic plan continues as previously, moving forward at the expected pace.

The Corporation has taken note of the press release of Group Mach Inc. issued on June 4 concerning its expressed interest to privatize the Corporation. Nevertheless, as of this date, the Corporation has not received any formal proposal in relation to Group Mach Inc.'s June 4 press release.