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Air Transat, Airbus A-330, courtesy Transat A.T. Inc. (Hand-Out/TRANSAT A.T.)
Air Transat, Airbus A-330, courtesy Transat A.T. Inc. (Hand-Out/TRANSAT A.T.)

Transat to tackle competition in turnaround efforts Add to ...

Jean-Marc Eustache is putting his plans to retire from Transat A.T. Inc. on hold until he develops a cost-cutting strategy to revive the money-losing tour operator.

Mr. Eustache, Transat’s chairman and chief executive officer, said the Montreal-based company is getting hammered by fierce competition and high fuel prices. He had delegated numerous management duties in recent years, but now intends to increase his workload.

“Today, the company is in bad shape. I think I have to take over and I have to go back in the operation,” Mr. Eustache said during a conference call Thursday.

A management shakeup has resulted in the departures of chief operating officer Nelson Gentiletti and Transat Tours Canada president Michael DiLollo. Allen Graham, president of Air Transat, is taking on the expanded role of Transat Canada president.

Mr. Eustache had circled Oct. 31, 2012, on his calendar as a potential retirement date as CEO, but acknowledged that’s no longer achievable.

He has a number of tactics in mind to try to combat aggressive competition from rivals such as Air Canada and WestJet Airlines Ltd. Transat will be more selective, for instance, in determining which holiday packages should go ahead as scheduled and which might be cancelled. In some instances, it will make sense to lay off crews and pay fees for grounding planes if travel demand is tepid, said Mr. Eustache, who co-founded Transat in 1987.

“It will be less expensive than flying planes half-empty or with cheap fares,” he said, noting that Transat generally needs to react more quickly in making decisions on fares and seat capacity.

Mr. Eustache made the comments after Transat announced it lost $2.9-million in its fiscal third quarter ended July 31, compared with a $20.9-million profit in the same period last year. Its adjusted third-quarter share profit of 7 cents fell far short of analysts’ estimates of 51 cents.

The disappointing financial showing and pessimistic outlook unnerved investors. Transat shares fell nearly 15 per cent on Thursday morning, then regained a bit of lost ground to close down 9 per cent to a two-year low of $7.25.

Canaccord Genuity Corp. analyst David Tyerman said Transat is being buffeted by competition in the summer on transatlantic routes and in the winter on sun destinations, notably Mexico and the Caribbean.

Rivals such as Air Canada and WestJet have been able to ramp up seat capacity, placing pressure on Transat. Other competitors include Sunwing Travel Group and Sunquest Vacations.

Air Canada seems to be a “disruptive force” on the transatlantic against Transat, while WestJet’s vacations division has aggressively expanded into sun markets and Sunwing has diversified into Europe, Mr. Tyerman said. “Transat is a highly concentrated business, dependent on the transatlantic in the summer and sun destinations in winter,” he said.

Transat’s corporate turnaround will take time, especially if the economy weakens, but Mr. Eustache expects to weather the storm.

“The company is not going to disappear. We have three million customers a year,” he said. “At the end of the day, we will do what we have to do to be profitable. We are not profitable this year, and this cannot continue.”

For the nine months ended July 31, Transat lost $7.7-million, compared with a $13.3-million profit in the same period in the previous fiscal year. But its balance sheet appears healthy, with $307.6-million in cash at the end of July.

“For sure, we have to be really careful with the cash that we have on the balance sheet for the next year because it will be a challenging year,” Mr. Eustache said. “So I really, really want to be careful.”

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