High fuel costs, falling prices hurt Transat

Thu Jun 14, 2012 1:57pm EDT
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By Susan Taylor

(Reuters) - Canadian travel operator Transat AT Inc TRZb.TO posted a big quarterly loss on Thursday despite a jump in revenue as intense competition drove down vacation package prices while fuel costs rose.

The Montreal-based company, whose stock sank 8 percent Thursday to a nine-year low, expects tough times to continue through the summer with currency fluctuations more than offsetting a drop in fuel costs.

Transat, which competes with WestJet Airlines' (WJA.TO: Quote) WestJet Vacations, Air Canada's ACb.TO Air Canada Vacations, and Sunwing Vacations, said it will cut capacity on its key transatlantic market by 4 percent over the summer, and by 13 percent for its Caribbean and Mexico market.

Laurentian Bank Securities analyst Ben Vendittelli said the results were "very negative" with "no improvement in sight based on management's outlook".

Transat said it is "very difficult" to make forecasts for the second half of the year, due to economic and political uncertainty in Europe and the impact of last-minute bookings on prices.

The company said it estimates that currency fluctuations and fuel prices this summer will result in a C$17 million to C$20 million hit on EBITDA. That is a big change from an estimate of C$30 million more than a month ago, it said, when fuel prices were higher.

"Transat continues to face tough headwinds in Europe owing the economic situation there and a difficult yield environment to sun destinations due to the amount of capacity offered by competitors - chiefly WestJet, Sunwing and Air Canada," said independent airline analyst Robert Kokonis.

"We do not expect these difficulties to change anytime soon ... Transat must diversify its revenue base as soon as possible by looking for non-traditional markets such as Latin America and Asia-Pacific."   Continued...