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Air Transat looks to cut $20-million in operating costs (Bayne Stanley)
Air Transat looks to cut $20-million in operating costs (Bayne Stanley)

airlines

Transat’s turnaround strategy faces litmus test in fourth-quarter results Add to ...

Winter has not been good to Transat A.T. Inc. in recent years. Canada’s largest tour operator has lost money in the past four winter seasons.

Among the reasons for the poor performance have been stiff competition from chief rival Sunwing Travel Group Inc., management’s overestimation of capacity requirements and failure to fully match appropriate fleet deployment to seasonal needs.

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But so far in fiscal 2013, Montreal-based Transat has produced encouraging results and chief executive Jean-Marc Eustache is determined to continue putting in a strong performance as the company enters that critical winter period, running from November to April.

The outlook for winter will no doubt be discussed on the conference call when Transat reports results for the fourth quarter ended Oct. 31 on Thursday.

“While it is still too early to predict the net impact of [Transat’s] turnaround strategy for the winter, management stated in October that the newly implemented strategy is progressing well,” Laurentian Bank Securities analyst Ben Vendittelli said in a recent research note.

“If the turnaround of winter operations progresses well the company could potentially break even this winter,” he said.

Canaccord Genuity analyst David Tyerman said in an e-mail that he expects strong fourth-quarter results on a decent transatlantic performance, continuing the third-quarter trend.

“For the winter sun destination season, the outlook is less clear. There is new capacity from Air Canada Rouge and I would expect additional capacity from WestJet and quite possibly others. The key will be whether the overall industry capacity is reasonably balanced with demand. At this point, that is still uncertain.”

Mr. Vendittelli believes “that strong [fourth-quarter] results combined with a successful winter turnaround could push the stock price significantly above current levels and we look to review our target price following quarterly results.

Meanwhile, Transat is on track with its $75-million cost-cutting plan, he said.

“Excess cash will likely start to build on the balance sheet over the next two years. We could see capital being returned to shareholders as management stated the possibility has been brought up in past director meetings. Additionally, management has stated that they could potentially do an acquisition, we believe in the U.S.”

 
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