Travel tour operator Transat A.T. Inc. appears to be doing all the right things in its efforts to take on fierce competition in a tight leisure travel market.
The Montreal-based company has cut office staff positions, put in place a program targeting $50-million in cost savings and revenue improvements, won concessions from its flight attendants, restructured its fleet of planes and scaled back capacity, among other moves.
An update from management on what – if any – progress is being made will likely be on the agenda Thursday when the company unveils second quarter results.
How bookings are shaping up for Transat’s summer season will be a key issue for analysts. The company put in a decent summer performance last year and the hope is that it can match or outdo that in 2013. But during the winter – sun destination – season, it has been struggling with industry overcapacity and tough competition from rivals such as Sunwing Travel Group Inc.
“Very weak results for Transat in the past several winters have been mainly a function of aggressive competition and industry overcapacity. Our early view of next winter is that competitive capacity will be more rational,” said National Bank Financial Inc. analyst Cameron Doerksen in a recent research report.
Meanwhile, a big threat looms on the horizon: Air Canada’s new low-cost airline Rouge.
“In our opinion, the major challenge for Transat in the coming years will be a more competitive market on the trans-Atlantic, specifically as Air Canada’s new lower cost carrier, Rouge, begins operations,” Mr. Doerksen said.
The impact should be slight this summer with Rouge rolling out only two 767 wide-bodies, but the carrier plans to ramp up the fleet to seven next year and 12 in 2015 while possibly eventually going to 20.
“To put this in perspective, Air Transat currently operates a fleet of 21 wide-bodies so the potential capacity additions by Rouge will be like adding another Air Transat into the trans-Atlantic market,” Mr. Doerksen said.
He anticipates a second-quarter loss of 36 cents, a robust improvement on the 64-cent loss in same quarter last year.
David Tyerman of Canaccord Genuity Corp. anticipates a loss of 22 cents. That may be “much better than last year, but obviously not good enough,” he said in an e-mail. “I think sun destination competition remains the issue.”