March 11, 2009 / 11:32 AM / in 9 years

UPDATE 3-Transat loss grows, dividend suspended

* Q1 share loss C$0.90 vs year-earlier loss C$0.23

* Adjusted share loss C$0.36

* Revenue rises 11.4 pct to C$877.3 mln

* Quarterly dividend suspended

* Stock closes down 9.9 percent at C$6.85 on the TSX (Adds details, quotes from conference call, analysts’ comments, share price)

By John McCrank

TORONTO, March 11 (Reuters) - Transat AT Inc TRZb.TO said on Wednesday it sold more travel packages, but increased competition led to lower prices and smaller margins from its North American operations, helping push the Canadian holiday travel company to a deeper quarterly loss.

The company, parent of airline Air Transat, suspended its quarterly dividend “in order to conserve cash in light of the current economic situation.” It said it had C$184.1 million ($142.7 million) on hand in cash and cash equivalents, up 26.3 percent from a year earlier.

Packages sold in North America to Mexico and the Caribbean were up 11.1 percent in the first quarter, but the company said lower prices due to growing competition from other tour operators hit its margins.

It said heightened competition and excess capacity would continue to hurt, even with expectations of higher demand for its sun destination package tours.

Transat co-founder and Chief Executive Jean-Marc Eustache said in a call to analysts that the company is budgeting for a profit in 2009, but that due to market conditions, the company would most likely make less than it did in 2008.

The “market will be difficult... not because the customers are not there, not because of the financial crisis, it’s because there’s overcapacity in our business,” he said.

“We know that when there’s a recession or when there’s a financial problem, there’s less business people traveling, but leisure usually is resilient. So they (airlines) are switching the capacity on the leisure market.”

Transat’s margin on North American earnings before interest, taxes, depreciation and amortization was 0.2 percent.

That marked the its worst first-quarter performance on that front since the immediate aftermath of the Sept. 11, 2001. attacks in the United States, Cameron Doerkson, an analyst at Versant Partners, said in a note.

DEEPER LOSS

Transat posted a loss of C$29.4 million ($23 million), or 90 Canadian cents a share, for its first quarter, ended Jan. 31. That compares to a loss of C$7.9 million, or 23 Canadian cents a share, for the year-earlier period.

Hedging to manage fluctuations in fuel prices also hurt the company’s results, with a noncash loss of C$28.5 million, compared with a C$2.0 million loss in the year-before quarter.

That was partially offset by a noncash revaluation gain of C$3.8 million on its holdings of asset-backed commercial paper. A year earlier, it took a writedown of C$14 million on ABCP.

Before one-time items, Transat said it lost C$11.8 million, or 36 Canadian cents a share.

Revenue rose 11.4 percent to C$877.3 million.

Analysts on average had expected a loss of 18 Canadian cents a share before exceptional items on revenue of C$819.9 million, according to Reuters Estimates.

Shares of Transat closed down 75 Canadian cents, or 9.9 percent, at C$6.85 on the Toronto Stock Exchange.

Versant cut its price target for Transat to C$8 from C$10, with a neutral rating. BMO Capital markets said its continued to rate the company “outperform”, as it expects that Transat could benefit from industry consolidation. ($1=$1.28 Canadian) (Additional reporting by John McCrank; Editing by Peter Galloway)

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