MONTREAL — The head of Transat AT Inc. says travel demand is poised to reach heights comparable with 2019, even as higher airfares and the threat of recession risk dampening customers' enthusiasm.
"Transat is moving towards a gradual return to profitability," CEO Annick Guérard told analysts on a conference call Thursday to discuss the company's latest results.
"Overall, we're still seeing a strong momentum in sales both for the rest of the winter and for summer."
The travel company, which owns Air Transat, said the pace of bookings is similar to pre-pandemic levels as strong demand fuels fare hikes and helps cover higher costs.
Prices have gone up so much that the airline expects a 25 per cent growth in yield — a key per-passenger revenue metric — in the current quarter compared with a year earlier.
Transat said in its investor presentation that despite concerns of a recession, the North American airline sector is benefiting from a "counter-cyclical recovery" with pent-up demand for travel.
This year the company plans to offer roughly 90 per cent of the number of seats for sale as it did in 2019.
"While it is too early to have a complete picture for the summer, the winter trends seem to be continuing into summer 2023," Guérard said.
Transat is also managing to recruit flight crew members amid an industry-wide worker shortage, hiring 20 pilots and 120 flight attendants per month, she said.
Airplane delivery delays mark a bigger hurdle, forcing the company to lease planes as the supply chain continues to work out kinks. Three long-range Airbus A321 planes that were due in spring won't arrive until the end of the summer, Guérard said, citing "sporadic difficulties" in production.
An aircraft also remains out of operation after being damaged near the gate at the Vancouver airport in November.
Transat projected an adjusted operating income margin of between four and six per cent this year.
The upbeat tone came after the company's 13th straight quarter of net losses, though they were the best results since the third quarter of 2020.
National Bank analyst Cameron Doerksen said the first-quarter results reinforce its confidence that adjusted earnings and cash flow will continue to improve into 2024.
"However, leverage remains too high in our view, and we continue to see a risk of future shareholder dilution," he said in a note to investors.
Transat reported a loss of $56.6 million or $1.49 per diluted share for the quarter ended Jan. 31 compared with a loss of $114.3 million or $3.03 per diluted share a year earlier.
Revenue in what was its first quarter totalled $667.5 million, up from $202.4 million a year earlier when the company had to scrub nearly 30 per cent of its scheduled flights as a result of booking cancellations following the emergence of the Omicron variant.
On an adjusted basis, Transat said it lost $1.62 per share in the quarter compared with an adjusted loss of $2.53 per share in its first quarter last year.
Those results came in above analysts' expectations, which had predicted an adjusted loss of $2.02 per share and $662.5 million in revenue, according to estimates compiled by financial markets firm Refinitiv.
Mired in red ink, Transat's net debt stood at $1.4 billion, though the total marked a reduction of $188 million from the preceding quarter.
“We want to start deleveraging in 2023," chief financial officer Patrick Bui said.
It also aims to achieve positive free cash flow this year, bumping up its timeline from the previous target of 2024.
This report by The Canadian Press was first published March 9, 2023.
Companies in this story: (TSX:TRZ)
Christopher Reynolds, The Canadian Press
