MONTREAL -- Embattled travel company Transat A.T. Inc. yesterday reported a sharp drop in third-quarter profit and warned that Tuesday's terrorist attack on the United States will have a "substantial impact" on its fourth-quarter earnings.

The Montreal-based operator of Canada's largest charter airline, Air Transat, also said that last month's emergency no-engines landing of an Air Transat Airbus A330 after running out of fuel on an overnight flight from Toronto to Lisbon could cost up to $5-million.

A chill on flying because of Tuesday's horrific events will contribute to a volatile market in the coming weeks, Transat vice-president and chief financial officer Lorraine Maheu said in a conference call with analysts.

"This leads us to forecast a substantial impact on profits for the fourth quarter," she said.

Transat chairman, president and chief executive officer Jean-Marc Eustache said reservations at the airline are off by about 15 per cent since Tuesday, and the company is studying various cost-cutting and downsizing scenarios "to be sure, at the end of the day, we still make a good profit."

Cancelling blocks of hotel rooms at various leisure resorts for the winter season is one option being examined, he said.

Besides Air Transat, the company also manages hotels, owns travel agencies and is a major tour packager in Canada and France.

For the three months ended July 31, Transat reported net profit of $5.9-million or 18 cents a share on revenue of $521.2-million, compared with profit of $9.8-million or 31 cents on $463.3-million a year earlier.

Analysts had expected a profit of about $10-million.

Transat attributed the profit decline to reduced demand in some markets, cost of fuel and fierce pricing competition.

Ms. Maheu said the $5-million estimate to cover the non-mechanical aspects of the Aug. 24 near-disaster -- such as securing replacement aircraft and paying the extra cost of fuel -- is on the high side and the actual figure could be lower.

Insurance should cover the mechanical damage as well as the cost of any successful lawsuits, she added.

No one was seriously injured in the incident, but some passengers have filed suits seeking up to $50-million in total damages.

Air Transat was also fined $250,000 by Transport Canada and slapped with flight restrictions.

Transat shares fell $1.75 or 23 per cent yesterday to close at $5.75 on the Toronto Stock Exchange after hitting a new 52-week low of $5.25.

The stock has been savaged since the Aug. 24 emergency landing and subsequent revelations about mechanical and maintenance problems with one of the plane's engines. The shares had been trading in the $11 range before the incident.