September 8, 2011 / 11:28 AM / 7 years ago

UPDATE 4-Transat warns of weak quarter as fuel costs weigh, shrs fall

* To cut costs to offset expected 30 pct rise in fuel price

* COO resigns as management ranks streamlined

* Posts Q3 loss; Adj EPS C$0.07 vs est C$0.54

* Q3 load factor falls, expected to fall in Q4

* Shares fall as much as 15 pct (Rewrites throughout with outlook, estimates, details and share movement)

Sept 8 (Reuters) - Canadian holiday travel operator Transat AT Inc TRZb.TO said it plans to cut costs and streamline its management as it braces for another quarter of higher fuel costs and emptier planes eating into margins, sending its shares down to a two-year low.

The warning from Transat TRZa.TO, which mainly operates transatlantic flights, follows that of Thomas Cook , Europe’s second-biggest travel firm, reflects higher fuel costs, the fall in trips to North African destinations due to the unrest there and stiff competition in the market.

Transat TRZa.TO posted a third-quarter loss compared with a profit in the year-ago quarter and said that results in the current quarter would also be “inferior” to the year-ago quarter.

However, Transat’s local competitors, WestJet Airlines’ WestJet Vacations and Air Canada’s ACa.TO Air Canada Vacations, both sketched a relatively optimistic outlook for the third quarter early last month.

Transat’s Class B shares were trading down about 9 percent at C$7.30 in afternoon trade on the Toronto Stock Exchange. Earlier in the session they fell to a low of C$6.83, a level not seen since March 2009.


Transat’s load factor — a measure of how well it sells available seats — fell in the third quarter and is expected to fall 4 percent in the current quarter. Selling prices are expected to remain flat, while fuel costs are expected to soar 30 percent like they did in the third quarter.

The higher fuel costs led to a 72 percent slump in third quarter margins forcing Transat to aim at reducing its direct and operating costs and choosing a cheaper computer system.

It aims to implement the cost cuts by the end of next month.

“We have a healthy balance sheet, but the situation demands that we take action to return to profitability,” Chief Executive Jean-Marc Eustache said.

As part of its executive revamp “in order to accelerate decision-making and execution,” Chief Operating Officer Nelson Gentiletti and Transat Tours Canada President Michael DiLollo would leave the company.

Allen Graham was appointed to oversee the operations of six of the company’s nine business units.

The company posted a third quarter loss of C$2.9 million, compared with a profit of C$20.9 million last year. Revenue rose 8 percent to $937.0 million.

Its adjusted profit of 7 Canadian cents a share was well below analysts’ expectations of 54 Canadian cents a share, according to Thomson Reuters I/B/E/S/. (Reporting by Amruta Sabnis in Bangalore; Editing by Joyjeet Das and Savio D’Souza)

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