Transat Achieves Record Q3 Profitability
Solid operating performance driven by sustained demand and higher yields
Transat raises once again its adjusted EBITDA margin target from 5.5-7% to 7.5-8% for the fiscal year
For the third quarter:
- Revenues of $746.3 million
- Adjusted EBITDA of $114.8 million
- Operating income of $64.4 million
- Net income of $57.3 million
Financial position:
- Unrestricted liquidity of $670.6 million as at July 31, 2023, up from $511.3 million at the same time last year due to a solid cash flow generation in the last 12 months
- Customer deposits for future travel of $819.9 million, an all-time high for a third-quarter, up 40% from July 31, 2022
- Land sale in Mexico completed on August 31 and net proceeds of C$50 million to be applied to debt reduction
MONTREAL, Sept. 14, 2023 /CNW/ – Transat A.T. Inc., a leisure travel reference worldwide, operating as an air carrier under the Air Transat brand, announced today its results for the third quarter ended July 31, 2023.
“Transat generated record adjusted EBITDA and net income for a third quarter, and its first net profit since the end of 2019. These results demonstrate strong overall execution and our ability to meet sustained customer demand in a cost-efficient way. Third-quarter revenues of $746.3 million were 6.8% above 2019 levels despite capacity being 14% less, while our record adjusted EBITDA of $114.8 million was nearly 85% higher. Robust demand for leisure travel produced yields 29% above those of 2019,” said Annick Guérard, President and Chief Executive Officer of Transat.
“Transat will conclude fiscal 2023 with solid momentum and, as a result, we are raising our adjusted EBITDA margin target from 5.5-7% to 7.5-8% for the year. Looking ahead to the winter season, the addition of three new A321LR and one A321ceo will contribute to increasing available capacity by 23% to be deployed on our best performing routes and promising new destinations. Early bookings are ahead of last year which, combined with firm pricing, bode well for the start of the new fiscal year,” concluded Ms. Guérard.
“From a financial perspective, our focus remains on debt reduction. In this regard, net proceeds from our recent land sale in Mexico of approximately C$50 million will be used to reduce our secured facilities. Although the second half usually produces negative free cash flows, our third-quarter performance improved by $45 million compared to last year, bringing our free cash flows generated by operations for the last twelve months to $153 million. This solid momentum raised unrestricted liquidity 31% above last year’s level, while record customer deposits for a third quarter are a strong indicator of resilient demand, which should allow Transat to further improve its financial position,” added Patrick Bui, Chief Financial Officer of Transat.
Third-quarter highlights
- For the third quarter, the Corporation generated $746.3 million in revenues, up $238.0 million from $508.3 million for the corresponding period of 2022. In 2022, the Corporation’s revenues were recovering from earlier sharp declines in demand and massive booking cancellations following the emergence of the Omicron variant.
- Transat recorded operating income of $64.4 million, an improvement of $157.6 million from a $93.2 million loss in 2022.
- Adjusted EBITDA amounted to $114.8 million, up $172.6 million from a loss of $57.8 million in 2022.
- Net income amounted to $57.3 million ($1.49 per share), compared with a net loss of $106.5 million ($2.82 per share) for the corresponding quarter of last year.
- Excluding non-operating items, Transat reported an adjusted net income of $42.3 million ($1.10 per share) for the third quarter of 2023, compared with an adjusted net loss of $120.9 million ($3.20 per share) in 2022.
Financial position
As at July 31, 2023, cash and cash equivalents amounted to $570.6 million, an increase of $159.2 million from $411.3 million at the same date in 2022. Cash and cash equivalents in trust or otherwise reserved resulting from travel package sales also improved year-over-year reaching $263.6 million as at July 31, 2023, compared with $213.5 million at the same date in 2022.
Reflecting the rebound in demand and higher average selling prices, customer deposits for future travel stood at $819.9 million, up 34% from pre-pandemic levels as at July 31, 2019, and up 40% from July 31, 2022.
In total, available financing amounted to a maximum of $963.3 million, of which $863.2 million was drawn down ($863.2 million as at July 31, 2022), for unrestricted liquidity1 of $670.6 million. The unused amount of $100.0 million is available until October 29, 2023.
Outlook
To date, load factors for the fourth quarter are 2.2 percentage points lower than in 2019, while airline unit revenues, expressed in yield, remain 26% higher. The combination of sustained demand and firm pricing will allow the Corporation to cope with a cost environment that remains generally higher and volatile.
Considering the solid results achieved in the first nine months of fiscal 2023, the Corporation is raising the target for adjusted EBITDA margin from a range of 5.5% to 7% to a target of 7.5% to 8% for the year. In making these forward-looking statements, the Corporation adjusted its assumptions for the full year, including moderate growth in Canada’s GDP, an exchange rate of C$1.35 to US$1 and an average price per gallon of jet fuel of C$4.25.
For the upcoming winter season, the recent addition of four aircraft (three A321LRs and one A321ceo) and enhanced fleet utilization will contribute to increasing available capacity by 23%, as the Corporation continues to methodically expand its offering. Current market trends regarding demand and pricing continue to bode well for the early stages of the new fiscal year.
Additional Information
The results were affected by non-operating items, as summarized in the following table:
| Highlights and non-IFRS financial measures | ||||
| (In thousands of Canadian dollars) | Third quarter | Nine-month period | ||
| 2023 | 2022 | 2023 | 2022 | |
| Revenues | 746,317 | 508,304 | 2,283,885 | 1,068,899 |
| Operating income (loss) | 64,375 | (93,218) | 45,012 | (254,572) |
| Restructuring costs | 1,007 | — | 3,350 | — |
| Depreciation and amortization | 53,752 | 38,173 | 137,623 | 112,144 |
| Premiums related to derivatives that matured during the period | (4,352) | (2,779) | (11,728) | (2,779) |
| Adjusted operating income (loss) | 114,782 | (57,824) | 174,257 | (145,207) |
| Net income (loss) | 57,303 | (106,472) | (28,487) | (319,093) |
| Asset impairment | 4,592 | — | 4,592 | — |
| Restructuring costs | 1,007 | — | 3,350 | — |
| Change in fair value of derivatives | (12,168) | 6,908 | 11,702 | 8,628 |
| Revaluation of liability related to warrants | 24,972 | (14,506) | 31,877 | (13,697) |
| Foreign exchange (gain) loss | (29,052) | (1,706) | (36,014) | 27,715 |
| Loss (gain) on asset disposals | — | 13 | (2,511) | (4,005) |
| Gain on long-term debt modification | — | — | — | (22,191) |
| Premiums related to derivatives that matured during the period | (4,352) | (2,779) | (11,728) | (2,779) |
| Tax recovery on ABCP losses | — | (2,359) | — | (2,359) |
| Adjusted net income (loss) | 42,302 | (120,901) | (27,219) | (327,781) |
| Diluted earnings (loss) per share | 1.49 | (2.82) | (0.75) | (8.44) |
| Asset impairment | 0.12 | — | 0.12 | — |
| Restructuring costs | 0.03 | — | 0.09 | — |
| Change in fair value of derivatives | (0.32) | 0.18 | 0.31 | 0.23 |
| Revaluation of liability related to warrants | 0.65 | (0.38) | 0.83 | (0.36) |
| Foreign exchange (gain) loss | (0.76) | (0.05) | (0.93) | 0.73 |
| Loss (gain) on asset disposals | — | — | (0.07) | (0.11) |
| Gain on long-term debt modification | — | — | — | (0.59) |
| Premiums related to derivatives that matured during the period | (0.11) | (0.07) | (0.31) | (0.07) |
| Tax recovery on ABCP losses | — | (0.06) | — | (0.06) |
| Adjusted net earnings (loss) per share | 1.10 | (3.20) | (0.71) | (8.67) |
| As at July 31, 2023 | As at October 31, 2022 | |||
| Cash and cash equivalents | 570,592 | 322,535 | ||
| Undrawn funds from credit facilities | 100,000 | 100,000 | ||
| Unrestricted liquidity | 670,592 | 422,535 |
| Third quarter | Nine-month period | |||||
| (In thousands of Canadian dollars) | 2023 | 2022 | Difference | 2023 | 2022 | Difference |
| $ | $ | $ | $ | $ | $ | |
| Cash flows related to operating activities | (7,534) | (62,724) | 55,190 | 378,113 | (117,793) | 495,906 |
| Cash flows related to investing activities | (4,136) | (9,992) | 5,856 | (21,896) | (25,001) | 3,105 |
| Repayment of lease liabilities | (40,407) | (24,191) | (16,216) | (109,947) | (83,600) | (26,347) |
| Free cash flow | (52,077) | (96,907) | 44,830 | 246,270 | (226,394) | 472,664 |
About Transat
Founded in Montreal 35 years ago, Transat has achieved worldwide recognition as a provider of leisure travel, operating as an air carrier under the Air Transat brand. Voted World’s Best Leisure Airline by passengers at the 2023 Skytrax World Airline Awards, it flies to international destinations. By renewing its fleet with the most energy-efficient aircraft in their category, it is committed to a healthier environment, knowing that this is essential to its operations and the destinations it serves. Transat has been Travelife-certified since 2018. (TSX: TRZ) www.transat.com