MONTREAL — Revenues were up 14% for Transat A.T. Inc. in the fourth quarter of 2017, following an “excellent” summer season that President and CEO Jean-Marc Eustache says was one of the best in the company’s history.
Transat A.T. plans to spend $750 million over the coming years to develop its hotel chain in Mexico and the Caribbean.
In a conference call on Thursday Transat co-founder and CEO Jean-Marc Eustache said he plans to devote the next 18 to 24 months until he retires to begin developing the chain of hotels while his heir, Annick Guerard, runs the company as COO.
“It’s our main goal for the development of Transat,” said Eustache.
A president for the hotel division will be hired within weeks to put the plan in action before he “disappears” after retiring and leaving his position as chairman, he added.
Transat plans to purchase and refurbish one hotel and a piece of land this year as it looks to build a network of 5,000 rooms, 60% of which it will own and manage, over the next five to seven years.
In October Transat sold its 35% stake in its Ocean Hotels joint venture for $186 million. The company also signed a deal last month to sell its Jonview Canada subsidiary to a Japanese company for $44 million.
Transat has also simplified its fleet to give it more flexibility, improved its digital footprint, augmented the amount of trips it sells directly and improved revenue management. “I think we are better armed to face any of those actions coming from our competitors in the future,” said CFO Denis Petrin.
Transat beat expectations as the travel company’s fourth-quarter net income surged due to a strong transatlantic summer season and the sale of its stake in Oceans Hotels.
For the quarter ended Oct. 31, 2017, the company posted revenues of $698.6 million, compared with $612.1 million for the same period in 2016, an increase of 86.4 million. This increase resulted mainly from an 8.7% increase in total travellers in the transatlantic market, while average selling prices were up 4%. In this market, Transat A.T. increased capacity by 8.5% compared with 2016, while overall capacity was up nearly 5%.
“The fourth quarter, like the summer as a whole, was excellent. Financially, our summer results were among the best in our history and significantly improved our results for the year compared with last year,” said Eustache. “From a strategic standpoint, we made great strides towards establishing our hotel division and in several other major areas, including fleet composition and corporate leadership succession.”
In the sun destination market, the corporation’s capacity was down 3.8% compared with 2016 due to hurricanes Irma and Maria, which resulted in the repatriation of passengers, particularly in Cuba and the D.R. and the cancellation of certain flights. As a result, total passengers were down 2.7% in that market, while average selling prices rose 7.2%.
Transat A.T.’s operations generated $78.5 million in adjusted operating income compared with $46.5 million in 2016. This uptick was driven primarily by higher average selling prices across its markets, as well as by higher capacity and load factors in the transatlantic market.
On Oct. 4, 2017, the corporation completed the sale of its 35% minority interest in Ocean Hotels to H10 Hotels, ahead of the anticipated Nov. 2, 2017 closing date. As announced earlier this July, the sale closed for $187.5 million, received in cash on Oct. 4.
For the whole year, Transat A.T. posted revenues of $3.0 billion compared with $2.9 billion in 2016 and adjusted operating income of $102 million, compared with $25.8 million in 2016. During the summer, the corporation increased its product offering in the transatlantic market by 7.9%, and average selling prices were higher across its markets. All markets combined, total travellers were up 8.2% for the year.
For the winter season, it posted an operating loss of $65.7 million (4.2%) compared with $54.2 million (3.4%) in 2016. This decline was due to a rise in air costs and the unfavourable foreign exchange effect which, combined with an increase in fuel prices, resulted in a $39.3 million increase in operating expenses for the winter. This could not be offset by higher average selling prices for sun destination packages, noted the company.
During the summer, operating income amounted to $100.5 million (7.0%), compared with $23.9 million (1.9%) for the previous year, driven primarily by higher average selling prices, capacity and load factors across markets.
This year, and particularly in the last six months, a number of initiatives were carried out to lay the foundations for the 2018-2022 plan. These include the announcement of the leases for 10 Airbus A321neo LRs, to be operational from the beginning of 2019, the extension of existing A330 leases under better financial conditions, the addition of new A330s, and an agreement with Thomas Cook that will see it provide the corporation with A321ceos in the winter, replacing the Boeing 737s currently operated by Transat.
Looking ahead to the first half of fiscal 2018, Transat A.T. reports that capacity is up 8% in the sun destination market outbound from Canada. To date, 50% of that capacity has been sold, bookings are ahead by 9.2%, and load factors are similar. Due to the strengthening of the Canadian dollar, offset by rising fuel costs, operating expenses are currently down 2.1%, while margins are currently up 2% from the same date last year.
As for the transatlantic market, where it is low season, Transat’s capacity is up 20% from last winter. To date, 47% of that capacity has been sold, bookings are ahead by 15% and load factors are down 2%.
If these trends continue, Transat said it expects to achieve better results than in the 2017 winter season.
With files from The Canadian Press
