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Report on Business Transat confronts ‘weak outlook’ as stock plummets to six-year low

An Air Transat sign is seen in Montreal, on May 31, 2016.

Paul Chiasson/The Canadian Press

Transat A.T. saw its stock drop to a nearly six-year low Thursday as the travel company faces falling profits, higher costs and rising competition from Canadian airlines amid a transition toward sun destinations and beachside resorts.

The share price fell more 9.35 per cent to close at $4.85, its lowest closing since April 2013.

Analyst Benoit Poirier of Desjardins Securities said Transat is confronting a “weak outlook” for the second quarter.

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The company has boosted its seat capacity by two per cent compared to a year ago, but the sun destination industry as a whole saw capacity rise 10 per cent, he said.

Meanwhile the travel company reported a loss of $49.6-million in its latest quarter compared with a loss of $3.2-million a year earlier.

It said it was hurt by a rise in operating costs due to the weakening of the loonie against the U.S. dollar, higher fuel prices and additional costs related to the transition and optimization of its fleet.

Chairman Jean-Marc Eustache dismissed the possibility of selling off the airline unit he co-founded 33 years ago.

“I know it’s not for me,” he said in response to an analyst’s question. “You need the airline to bring the customers to the hotel business, especially at the beginning.”

The company’s airline unit, Air Transat, competes for beach-bound customers against Air Canada, WestJet Airlines Ltd. and, since June, WestJet’s ultra-low-cost offshoot, which touts routes to Mexican hot spots and Jamaica’s Montego Bay.

The steeper competition comes as Transat shifts its focus to building a network of beachside hotels it hopes will better position the holiday tour operator against heightened competition from Canadian rivals.

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Transat aims to own or manage 5,000 rooms in Mexico and the Caribbean by 2024, in a bid to defend its turf against Air Canada Rouge, WestJet Vacations and Sunwing Airlines.

In October 2017, the Montreal-based travel company sold its 35 per cent stake in its Ocean Hotels joint venture for $186-million. The next month it sold its Jonview Canada tour business to Japanese travel company H.I.S. Co. Ltd. for $44-million in November 2017 – adding to the disparity between that quarter’s profits and the latest quarter’s.

Last year the company completed the acquisition of a parcel of land in the village of Puerto Morelos – less than 40 kilometres from Cancun in Mexico’s Yucatan Peninsula – where it plans to build a beach resort.

The hotel – which will boast between 600 and 900 rooms – will be up and running by November 2020, with construction starting in June, Eustache said on a conference call with investors Thursday.

Transat said its earnings loss amounted to $1.32 per diluted share for the quarter ended Jan. 31 compared with a loss of nine cents per share a year ago when its results benefited from the sale of its Jonview subsidiary.

Revenue in what was the company’s first quarter totalled $647.6-million, down from $648.4-million.

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On an adjusted basis, Transat says it lost $36-million or 96 cents per share in its most recent quarter compared with an adjusted loss of $32.2-million or 87 cents per share a year earlier.

Analysts on average had expected a loss of 78 cents per share and revenue of 760.7 million, according to Thomson Reuters Eikon.

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