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Transat swings to profit on cost cuts, shares up
September 13, 2012 / 12:21 PM / in 5 years

Transat swings to profit on cost cuts, shares up

(Reuters) - Canadian travel operator Transat AT Inc TRZb.TO posted its first profit in five quarters as it benefited from cost-cutting measures and said it will also reduce capacity for winter.

Transat A.T. Inc. president and CEO Jean-Marc Eustache smiles at the company's annual shareholders meeting in Montreal, March 10, 2011. REUTERS/Shaun Best

Transat’s shares on the Toronto Stock Exchange, which have fallen 42 percent this year, were up 25 percent at C$4.93 on Thursday. The stock was the top percentage gainer on the exchange.

The company, which offers holiday travel services in package and air-only formats, competes with WestJet Airlines’ (WJA.TO) WestJet Vacations and Air Canada’s ACb.TO Air Canada Vacations.

Transat plans to cut 7 percent of its overall capacity this winter.

The company, which gets about two-thirds of its revenue from its North American business, also operates in Europe and the Mediterranean basin.

“We are cutting capacity in Europe this winter. We had capacity last winter in Europe. We made a big loss,” Chief Executive Jean-Marc Eustache said in a conference call.

The reduction in capacity helped the company lower operating expenses by 4 percent to C$887 million during the quarter.

Canaccord Genuity analyst David Tyerman called the cutbacks “very positive,” but said competition, which has squeezed margins over the last several quarters, continues to be the biggest challenge for the company.

Transat said prices and load factors, or the percentage of available seats filled with paying customers, were higher in the current quarter than a year ago for its transaltlantic market. It also said fourth-quarter margins are likely to be above those of last year.

Transat swung to a profit of C$9.4 million, or 25 Canadian cents per share, during the third quarter from a loss of C$2.8 million, or 7 Canadian cents per share, a year earlier. It had an adjusted after-tax income of 28 Canadian cents per share.

Revenue fell 3 percent to C$909.1 million, in line with the lower capacity.

However, National Bank Financial analyst Cameron Doerksen wrote in a research note that he remains cautious on the company until he sees clear evidence of a sustained improvement in profitability, including in the winter.

Reporting by Ankur Banerjee in Bangalore; Editing by Sreejiraj Eluvangal

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