Transat A.T. Q3 Earnings Call Highlights

Key Points

• Fuel inflation and aggressive competition sharply weakened profitability: Q3 revenue rose 3% to $793 million, but adjusted EBITDA fell to negative $1 million from positive $81 million as reported fuel costs increased 50% to $138 million. Transat posted an adjusted net loss of $89 million, or $2.18 per share.
• Liquidity improved through government financing: Transat fully drew a $150 million LASR facility and secured an additional $250 million LEEFF loan, although cash declined to $243 million and net debt shifted to $205 million from a net cash position in the prior quarter.
• The company is prioritizing capacity discipline while managing operational disruptions: No winter capacity growth is planned, and four aircraft remained grounded because of Pratt & Whitney engine issues. Transat expects related costs to persist until at least 2028 while pursuing loyalty and premium-cabin initiatives for longer-term revenue growth.

Transat A.T. TSE: TRZ reported a third-quarter loss as persistently elevated fuel prices outweighed revenue and traffic growth, while competitive pricing across the Canadian travel market limited the company’s ability to pass higher costs on to customers.

President and CEO Annick Guérard said demand remained resilient and the company’s transatlantic network continued to perform well, but fuel costs placed “considerable pressure on profitability.” Transat is responding through capacity discipline, cost management, liquidity measures and network adjustments, she said.

Third-quarter revenue rose 3% year over year, or $26 million, to $793 million, supported by higher capacity and traffic. Adjusted EBITDA was negative $1 million, compared with positive $81 million a year earlier. CFO Jean-François Pruneau said the decline was almost entirely attributable to higher fuel costs.

Fuel costs and competition pressure results

Before support from the federal government’s Liquidity for Airline Sector Resilience, or LASR, facility, Transat’s fuel costs increased by $105 million from the prior-year period. The fuel price rose 56% to US$3.74 per gallon from US$2.40 a year earlier.

Transat recorded a $25 million contribution under the LASR facility as a reduction in fuel expense. Reported fuel expense was $138 million, up $79 million, or 50%, from the prior year, according to Pruneau.

The company posted a net loss of $107 million, compared with net income of $400 million in the prior-year quarter. The year-earlier result included a one-time $245 million gain on the extinguishment of long-term debt connected with government debt refinancing. Adjusted net loss was $89 million, or $2.18 per share, versus an adjusted net loss of $12 million, or $0.28 per share, a year earlier.

Guérard said Transat operates in a highly price-sensitive segment, and industry capacity growth combined with unusually aggressive promotions across Canada constrained fare increases. While Transat’s economy-cabin performance was not materially different from that of competitors or legacy carriers, she said legacy airlines have larger premium, corporate and loyalty revenue streams that help offset rising fuel costs.

“This is exactly what our loyalty program and cabin transformation initiatives are designed to address,” Guérard said.

Third-quarter capacity increased 6% year over year, while load factor was slightly below the prior year and yield declined 1%. Transatlantic yield increased 0.6% despite 8% capacity growth, which management said demonstrated the resilience of the core network but did not offset fuel inflation.

The company’s sun-destination program continued to be affected by Cuba, with a cumulative revenue impact of $116 million. Guérard said removing Cuba from the network changed the company’s route mix because Cuba had been a high-performing, shorter-distance market.

Liquidity bolstered by government financing

Transat closed financing of up to $150 million under the LASR program on July 27 and has fully drawn the facility. The loan matures in July 2030 and bears interest at 3.91%.

The federal government also agreed to provide an additional $250 million loan under the company’s existing LEEFF agreement. The multi-draw loan matures in 2035 and bears interest at 1.22% for its first three years and 3% thereafter.

Pruneau said the company had absorbed about $175 million in incremental fuel costs since March. Based on the current forward fuel price curve, he said management believes the available government funding will be sufficient, while acknowledging that fuel markets remain volatile.

• Cash and cash equivalents totaled $243 million as of July 31, compared with $390 million at the end of the second quarter.
• Customer deposits for future travel were $847 million, compared with $822 million a year earlier.
• Long-term debt and deferred government grants totaled $448 million, up from $320 million three months earlier.
• Long-term debt and deferred government grants, net of cash, were $205 million, compared with a net cash position of $70 million at the end of the second quarter.

Free cash flow was negative $302 million during the quarter, compared with negative $122 million a year earlier, reflecting lower operating profitability and the absence of $61 million in prior-year proceeds from engine sale-and-leaseback transactions. For the first nine months, free cash flow was positive $4 million, compared with $149 million in the prior-year period.

Engine disruptions add to operating costs

At quarter-end, four of Transat’s 41 aircraft were grounded because of Pratt & Whitney GTF engine issues, one more than the company had expected when planning its summer schedule. Additional unscheduled maintenance involving engines on its A330 fleet added operational strain.

Pruneau said the disruptions required aircraft substitutions, schedule changes and crew reassignments, contributing to overtime and related costs. The company received $7 million in compensation from Pratt & Whitney during the quarter, booked as revenue, but said the amount did not fully offset the financial impact of the engine problems.

Transat expects additional costs and revenue-management inefficiencies from the issue to continue until it is fully resolved, which management does not anticipate before 2028. The company is using leased spare engines and active fleet management to mitigate the disruptions.

Capacity discipline and longer-term initiatives

For the fourth quarter, Transat said load factor was 0.6 percentage points ahead of the same time last year, while yield was broadly in line. Available seat miles are expected to increase about 2% year over year, though Guérard said seat capacity is below 2% higher and the ASM increase is tied to the removal of Cuba rather than market expansion.

The company plans no capacity growth for the upcoming winter season, focusing instead on its strongest markets. Management said demand for southern destinations has been strong, with load factors similar to last year and yields higher year over year, though those higher yields are not yet enough to cover increased fuel costs.

Transat launched new nonstop service from Montreal to Agadir, Reykjavik and Dakar during the summer, as well as service from Toronto to Tirana. Guérard said early route performance was encouraging, and Montreal-Dakar will operate year-round beginning in the winter.

The company also continues to develop its loyalty program and cabin reconfiguration strategy. More than 23,000 members have enrolled in the loyalty program’s beta launch, with engagement exceeding initial expectations. The full launch remains planned for late 2026, although Pruneau said the program’s financial contribution in 2027 should be minimal and is expected to become material after roughly three years.

The first reconfigured aircraft is scheduled to enter service in the second half of 2027. The initiative is intended to expand premium seating, increase ancillary revenue and improve the customer experience. Management said the program will have a minimal effect on capital expenditures next year, with most of the spending expected in 2028.

About Transat A.T. (TSE:TRZ)

Air Transat is a leading travel brand voted 2025 World's Best Leisure Airline by passengers at the Skytrax World Airline Awards. Its program offers access to international destinations, mainly in Europe, the Caribbean, the east coast of the United States, South America and North Africa. Air Transat is recognized for its excellent customer service. Its fleet includes some of the most energy-efficient aircraft in their category. Based in Montreal with major hubs in YUL Montréal-Trudeau International Airport and Toronto Pearson Airport (YYZ), it has 5,000 employees with a common purpose to bring people closer together.

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