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Full disclosure: At a wine tasting at this newspaper’s building this year, Transat A.T. Inc. had a booth where you could win $2,500 toward a trip. Benj filled in the ballot and convinced his better half to put her wine glass down momentarily and do it, too. Lo and behold, Transat called the next day to say she had won! Sweet! Dominican Republic, here we come.

This in no way, shape or form colours our view of the enterprise. Both of us hold the stock in our personal accounts and are optimistic that the price still has a distance to run. Attending the annual general meeting this year in Montreal supported that assessment.

Although the bottom line has been spotty from year to year, with losses in four of the past 10, over all, the profits have far exceeded the red ink. The balance sheet remains uncharacteristically clean for an airline company with no debt. Normally, enterprises in this sector are heavily burdened with liabilities, leading many to join the pterodactyl in extinction. Over the past four years, the book value has jumped from less than $10 to about $15.50, while the share count has decreased slightly from 39 million to 37 million.

Transat reported quarterly results last week. Revenue dropped from $733-million a year ago to $697-million. While that sounds shabby, the decline was due to the sale of the Ocean Hotels and Jonview subsidiary, which knocked sales down $77-million. In fact, voyageurs increased a tidy 7 per cent to sunny climes and 11.5 per cent on transatlantic routes. The divestiture, along with positive cash flow, swelled cash and equivalents to $867-million from $581-million. At the end of the day, the bottom line was a loss of $4-million. The stock price plunged on the results, dropping 6.6 per cent to $8.25. Less than a decade ago, the stock price peaked at $23.50. While that seems a bit like a flight of fantasy, $17 is certainly within the potential cruising altitude for this company, which launched more than 30 years ago.

The strategy at TRZ has been evolving. A primary goal is to operate and manage its own hotels, which could number 5,000 over the next seven years. That sounds ambitious and will require mucho dinero, but that’s something the corporation does have. Still, this expansion is a primary risk for those looking to invest in this operation, as hiccups are certain to occur during the build. But if done correctly, this could add handsomely to the bottom line.

On a macro level, it appears the corporation’s future is bright. The world’s population continues to increase – as does its disposable income. With additional money, people will explore the globe. Increased immigration to Canada is also supporting this trend, as both new and old Canadians want to see more of the world, and many simply travel back to their homelands to visit relatives. Transat flies to about 60 destinations in the Americas, Europe and the Middle East, so even though it does not cover the globe, it has pretty good reach. About 4.5 million butts fill the company’s seats every year.

Aviation is a tough sector in which to operate, but, over all, TRZ has done well under the guiding hands of co-founder and president and chief executive Jean-Marc Eustache. Although there will be turbulence ahead, this company has proven that it can survive through the good times and the bad. Benj looks forward to reminiscing about their service while lounging in the DR.

Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter.

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