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Transat expected to post first-quarter loss Add to ...

If there were ever a winter that should be good for tour operators such as Transat A.T. Inc., this is it. With many Canadians desperate to get away from the frigid and snowy weather, shouldn’t it be a banner year for any company carrying passengers to warm destinations?

But winters can actually be tough on tour operators, because flight cancellations and bad operating conditions add costs. When you factor in the recent skid in the value of the Canadian dollar, and intense competition, the outlook is much more uncertain.

Montreal-based Transat will reveal just how well it did during the initial portion of the winter on Thursday, when it releases its first-quarter financial results for the period ended Jan. 31.

“Cold, snowy weather may encourage stronger than usual demand for sun destinations,” Canaccord Genuity analyst David Tyerman said in an e-mail. On the other hand, “weather may have hit costs negatively.”

Still, Mr. Tyerman said, the key factors that will have an impact on earnings are the drop in the Canadian dollar, and how the competitive environment is playing out. He noted that Transat said in December it would add capacity to its sun destinations, but that can make it tough to keep prices up enough to compensate for the strong U.S. dollar, especially as Air Canada and WestJet are also adding to their capacity.

“At this point, it is difficult to say how this will play out,” he said.

All analysts who cover Transat are expecting it to report a per-share loss in the first quarter, with the consensus that the loss will come in at about 48 cents a share.

Ben Vendittelli, an analyst with Laurentian Bank Securities, notes that the first quarter of each year is traditionally weak for Transat.

Except for a couple of years in its history, it has lost money during that period.

The drop in the Canadian dollar could be hard on Transat, Mr. Vendittelli said, because the company has about $1-billion of its annual costs in U.S. dollars. However, he noted, the company has hedging in place, and it has moved to increase winter prices. The dollar’s drop could have more impact during the summer if Canadians prove hesitant to go to Europe because of the weakened currency, he said.

Over all, analysts are pretty bullish on Transat in the long term, and nine out of 10 who cover the company have “buy” ratings. One-year target prices on the stock are in the $14 to $20 range. Transat shares, which almost tripled in value in the last six months of 2013 and hit a high of $14.70 in mid-December, have fallen back below $11 recently.

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