Canadian leisure airline Transat, which had a pre-pandemic deal to merge with Air Canada, ultimately remained independent (European competition regulators didn’t like the idea). The pandemic itself was of course greatly damaging to its business. But conditions are much better now. “These last few months have shown something powerful,” said CEO Annick Guerard in a company earnings call last week. “People have a strong desire to travel. Spending on travel is a priority to consumers.”
Transat reported for its fiscal fourth quarter, which includes August, September, and October; the latter two months are generally offpeak for leisure travel. It was also a period that this year featured high fuel prices and cost pressure from a strong U.S. dollar. As a result, Transat recorded a negative 9 percent operating margin. But the airline is fairly bullish about the year ahead, forecasting a positive operating margin of 4-6 percent. Bookings are still strong. Fares are still high. And fuel prices have plummeted by a quarter from recent highs. “Transat’s financial situation, although far from ideal, has stabilized,” Guerard said.
Air Transat, the airline within the group, flew 86 percent of its 2019 capacity levels this summer, filling 82 percent of its seats. In the August-to-October quarter, that rose to 91 percent of pre-pandemic capacity with an 83 percent load factor. Transat is heavily dependent on the transatlantic market during summers, shifting to reliance on southern sunshine markets, like Florida and the Caribbean, during winters.
Strategically, the airline is focused on fleet renewal, enthusiastically acquiring long range versions of the Airbus A321neo, including the XLR variant due to arrive in a few years. Even the existing long-range A321LRs already in its fleet have the range to reach western Europe from eastern Canada. Transat currently flies 31 planes, specifically 12 A330s (-200s and -300s), 12 A321LRs, and seven A321ceos. Another strategic priority is partnering with other airlines. It now has codeshare arrangements with both WestJet and Porter Airlines.
Geographically, Air Transat is allocating much of its growth to eastern Canada, where it’s larger now than it was pre-Covid. Recent network moves will also enable significantly greater aircraft utilization. It also aims to use its assets more during offpeak seasons, working to mitigate the risk of flying empty seats. Transat is also seeking more ancillary revenues. On the cost side, meanwhile, labor contracts are mostly settled, having signed a new pilot contract in the second quarter. It more recently struck a new deal with mechanics.
In sum, Transat — while working to improve its less-than-ideal cash position — approaches 2023 with strong demand and high prices for its airline tickets and travel packages. Even better, fuel prices are down. But what if there’s a recession? “As always,” Chief Financial Officer Patrick Bui said, “we remain vigilant on the economic situation and potential impact on demand. At the current time, we do not see a negative impact on our booking trend.”
In Other News
- The Lufthansa Group continues to see strong demand, with average passenger yields still “well above pre-crisis level.” The group’s large cargo and maintenance units, meanwhile, expect their best financial results ever this year. The final quarter of 2022 has thus far “exceeded expectations” in terms of company earnings. And passenger bookings for the months ahead show ongoing strength. For all of 2022, Lufthansa now expects an operating profit excluding special items of around $1.5 billion. It previously told investors to expect a profit of more than $1 billion, so, clearly, it has overdelivered. Management will publish results on March 3. Separately, Swiss, a wholly-owned Lufthansa subsidiary, opted for five Airbus A350-900s. They’ll eventually replace the carrier’s aging A340-300s, which have four engines rather than two. The A350s are not actually a new order, but will instead come from a Lufthansa commitment for 25 aircraft placed in 2019. In yet another Lufthansa development, meanwhile, the carrier’s Munich hub will restore flights to more cities, including Mexico City and Osaka Kansai. Flights will recommence next summer.
- In people moves, American Airlines and Etihad Airways both have new chief financial officers. American will promote Devon May, currently senior vice-president of finance investor relations, to CFO effective January 1. May replaces Derek Kerr who is stepping back from the role that he’s held successively at America West, US Airways, and most recently American since 2002. Kerr will remain as vice chairman of American, and president of American Eagle. Halfway around the world, Etihad has named Raffael Quintas its new CFO. Quintas joined the airline from Latin American e-commerce firm Infracommerce, and has previously held finance roles at both Azul and TAP Air Portugal.
- And both Southwest and United received some good labor news last week. Roughly 8,300 customer service staff represented by the International Association of Machinists and Aerospace Workers (IAM) at Dallas-based Southwest ratified a new five-year accord. The contract gives them 16-25 percent pay raises and other quality of life improvements. And at United, the airline reached an agreement in principal with the Teamsters covering its more than 8,000 technicians and related employees. The union must now finalize the terms into a tentative agreement, and then technicians will vote on the contract.
- Cathay Pacific, as it seeks to rebuild its business following the Covid crisis, has restored first class service on some flights. The product first returned on selected Hong Kong flights to London Heathrow earlier this month. Flights to Paris and Tokyo are next in line. General Manager Customer Experience and Design Vivian Lo said in a statement: “We are extremely excited to be bringing back our first class service after an extended absence as the world’s appetite for travel comes roaring back.” Cathay also offers a separate business class service, as well as premium economy.