Transat A.T. Inc. Reports Results for the Third Quarter of Fiscal 2024

Implementation of a Comprehensive Optimization Plan to Accelerate Corporate Strategy Execution

Third-quarter highlights:

• Revenues of $736.2 million, down 1.4% from $746.3 million last year
• Adjusted EBITDA1 of $41.3 million, compared to $114.8 million last year
• Net loss of $39.9 million ($1.03 per share), versus net income of $57.3 million ($1.49 per share) last year
• Negative free cash flow1 of $168.7 million, compared to $52.1 million last year
• Customer deposits for future travel of $825.8 million, up 1% from July 31, 2023
• Named the World's Best Leisure Airline for the sixth time at the 2024 Skytrax World Airline Awards

MONTREAL, Sept. 12, 2024 /CNW/ - Transat A.T. Inc., a leisure travel reference worldwide, operating as an air carrier under the Air Transat brand, announced today its results for the third quarter ended July 31, 2024.

"Transat's third-quarter results reflect evolving market conditions and industry-wide pressure as recently indicated by other carriers. Demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty. Capacity increases throughout the industry also added to competitive pressure and negatively impacted yields," said Annick Guérard, President and Chief Executive Officer of Transat.

"We have launched a comprehensive plan, referred to as our Elevation Program, which is designed to accelerate our corporate strategy execution and drive long-term profitable growth. The program, initiated this summer, aims for a complete review of operations and business practices. Its objective is to accelerate the implementation of enhanced tools and processes for our teams, in order to optimize overall execution and efficiency. The program will be spearheaded by the newly created Elevation Management Office, which will strengthen governance and accountability for the initiatives undertaken. Our target is to achieve a $100 million improvement in annual adjusted EBITDA1 over the next 18 months," added Ms. Guérard.

"Profitability remains affected by costs related to capacity deployment and by the Pratt & Whitney GTF2 engine issue. We have agreed to a financial compensation from Pratt & Whitney relating to operational disruptions during the 2023-2024 period. Such financial compensation, which is mostly in the form of credits, will be applied to the purchase of additional spare engines, which we intend to monetize through a sale and leaseback transaction. Looking ahead, we are confident that the initiatives from our Elevation Program will gradually place us on the path to sustaining an improved financial performance. Nevertheless, it remains our top priority to complete a refinancing plan and strengthen our balance sheet. To that end, we are continuing our discussions with stakeholders and are reviewing a number of alternatives," added Jean-François Pruneau, Chief Financial Officer of Transat.

Third-quarter results

For the three-month period ended July 31, 2024, revenues reached $736.2 million, down 1.4% from $746.3 million in the corresponding period a year ago. The decrease in revenues is attributable to lower airline unit revenues (yield), which were down 9.7% compared with 2023, partially offset by a 2.8% increase in traffic expressed in revenue-passenger-miles (RPM). The intensified competition, industry wide overcapacity, inefficiencies resulting from the Pratt & Whitney GTF2 engine issue affecting revenue management and the economic uncertainty put downward pressure on airline unit revenues. Company-wide capacity was up 5.6% from last year.

Adjusted EBITDA1 stood at $41.3 million, compared with $114.8 million a year ago. In addition to lower yields, the variation is mainly due to higher operating expenses associated with capacity expansion, expenses caused by the Pratt & Whitney GTF2 engine issue, and by higher fuel expenses reflecting a 6% increase in fuel prices compared with the corresponding period in 2023.

Nine-month results

For the nine-month period ended July 31, 2024, revenues reached $2,494.9 million, up 9.2% from $2,283.9 million in the corresponding period a year ago. For the nine-month period, across the entire network, offered capacity increased by 12.9% compared with 2023. Overall, traffic was 10.0% higher than for the corresponding period in 2023. Revenue growth was impacted by the same factors provided for the three-month period, along with strike threats during the winter season.

For the nine-month period, adjusted EBITDA1 stood at $70.3 million, compared with $174.3 million a year ago. The decline is mainly attributable to the same factors provided for the three-month period.

Cash flow and financial position

Cash flow used in operating activities amounted to $91.1 million during the third quarter of 2024, compared with $7.5 million for the same period last year, due to lower liquidity generated by net change in non-cash working capital balances as well as other assets and liabilities and to a decrease in operating income this year. These factors were partially offset by an increase in the net change in the provision for return conditions. After accounting for investing activities and repayment of lease liabilities, negative free cash flow1 reached $168.7 million during the quarter, versus $52.1 million a year earlier.

As at July 31, 2024, cash and cash equivalents amounted to $361.9 million, compared to $570.6 million at the same date in 2023 and $435.6 million as at October 31, 2023. Cash and cash equivalents in trust or otherwise reserved mainly resulting from travel package bookings increased year-over-year reaching $274.7 million as at July 31, 2024, compared with $263.6 million at the same date in 2023.

During the nine-month period ended July 31, 2024, the Corporation early repaid its subordinated credit facility for its operations that was due to mature on April 29, 2025. The repayment totalled $46.0 million. The Corporation also reduced its LEEFF secured facility by repaying an amount of $11.0 million. Following these repayments, long-term debt and deferred government grant, net of cash, amounted to $430.0 million as at July 31, 2024, up from $380.1 million as at October 31, 2023.

Key indicators

To date, load factors for the fourth quarter are slightly higher compared to the same date in fiscal 2023, while airline unit revenues, expressed as yield, are 9.7% lower than they were at this time last year.

For fiscal 2024, the capacity increase now stands at 9.9%, a decrease of 1.1% since the second quarter.

Conference call

Third-quarter 2024 conference call: Thursday, September 12, 10:00 a.m. To join the conference call without operator assistance, you may register and enter your phone number here to receive an instant automated call back.

You can also dial direct to be entered into the call by an operator:
Montreal: 514 400-4446
North America (toll-free): 1 888 510-2154
Name of conference: Transat
The conference will also be accessible live via webcast: click here to register.

An audio replay will be available until September 19, 2024, by dialing 1 888 660-6345 (toll-free in North America), access code 15933 followed by the pound key (#). The webcast will remain available for 90 days following the call.

Fourth-quarter 2024 results will be announced on December 12, 2024.

(1) Non-IFRS financial measures

Transat prepares its financial statements in accordance with International Financial Reporting Standards ["IFRS"]. We will occasionally refer to non-IFRS financial measures in the news release. These non-IFRS financial measures do not have any meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They are intended to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with IFRS. All dollar figures are in Canadian dollars unless otherwise indicated.

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

Adjusted operating income (loss) or adjusted EBITDA: Operating income (loss) before depreciation, amortization and asset impairment expense, reversal of impairment of the investment in a joint venture, restructuring and transaction costs and other significant unusual items, and including premiums related to derivatives that matured during the period. The Corporation uses this measure to assess the operational performance of its activities before the aforementioned items to ensure better comparability of financial results.

Adjusted pre-tax income (loss) or adjusted EBT: Income (loss) before income tax expense before change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain on disposal of investment, gain (loss) on asset disposals, restructuring and transaction costs, write-off of assets, reversal of impairment of the investment in a joint venture, foreign exchange gain (loss) and other significant unusual items, and including premiums related to derivatives that matured during the period. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results.

Adjusted net income (loss): Net income (loss) before change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain on disposal of investment, gain (loss) on asset disposals, restructuring and transaction costs, write-off of assets, reversal of impairment of the investment in a joint venture, foreign exchange gain (loss), reduction in the carrying amount of deferred tax assets and other significant unusual items, and including premiums related to derivatives that matured during the period, net of related taxes. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results. Adjusted net income (loss) is also used in calculating the variable compensation of employees and senior executives.

Adjusted net earnings (loss) per share: Adjusted net income (loss) divided by the adjusted weighted average number of outstanding shares used in computing diluted earnings (loss) per share.

Free cash flow: Cash flows related to operating activities less cash flows related to investing activities and repayment of lease liabilities. The Corporation uses this measure to assess the cash that's available to be distributed in a discretionary way such as repayment of long-term debt or deferred government grant or distribution of dividend to shareholders.

Total debt: Long-term debt plus lease liabilities, deferred government grant and liability related to warrants, net of deferred financing costs related to the unsecured debt - LEEFF. Management uses total debt to assess the Corporation's debt level, future cash needs and financial leverage ratio. Management believes this measure is useful in assessing the Corporation's capacity to meet its current and future financial obligations.

Total net debt:Total debt (described above) less cash and cash equivalents. Total net debt is used to assess the cash position relative to the Corporation's debt level. Management believes this measure is useful in assessing the Corporation's capacity to meet its current and future financial obligations.

Additional Information

The results were affected by non-operating items, as summarized in the following table:

Highlights and non-IFRS financial measures

About Transat

Founded in Montreal 36 years ago, Transat has achieved worldwide recognition as a provider of leisure travel particularly as an airline under the Air Transat brand. Voted World's Best Leisure Airline by passengers at the 2024 Skytrax World Airline Awards, it flies to international destinations. By renewing its fleet with the most energy-efficient aircraft in their category, it is committed to a healthier environment, knowing that this is essential to its operations and the destinations it serves. (TSX: TRZ) www.transat.com

Caution regarding forward-looking statements

This news release contains certain forward-looking statements with respect to the Corporation, including those regarding its results, its financial position and its outlook for the future. These forward-looking statements are identified by the use of terms and phrases such as "anticipate" "believe" "could" "estimate" "expect" "intend" "may" "plan" "potential" "predict" "project" "will" "would", the negative of these terms and similar terminology, including references to assumptions. All such statements are made pursuant to applicable Canadian securities legislation. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions. Forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements.

The forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, economic conditions, changes in demand due to the seasonal nature of the business, extreme weather conditions, climatic or geological disasters, war, political instability, real or perceived terrorism, outbreaks of epidemics or disease, consumer preferences and consumer habits, consumers' perceptions of the safety of destination services and aviation safety, demographic trends, disruptions to the air traffic control system, the cost of protective, safety and environmental measures, competition, maintain and grow its reputation and brand, the availability of funding in the future, the Corporation's ability to repay its debt, the Corporation's ability to adequately mitigate the Pratt & Whitney GTF engine issues, fluctuations in fuel prices and exchange rates and interest rates, the Corporation's dependence on key suppliers, the availability and fluctuation of costs related to our aircraft, information technology and telecommunications, cybersecurity risks, changes in legislation, regulatory developments or procedures, pending litigation and third-party lawsuits, the ability to reduce operating costs, the Corporation's ability to attract and retain skilled resources, labour relations, collective bargaining and labour disputes, pension issues, maintaining insurance coverage at favourable levels and conditions and at an acceptable cost, and other risks detailed in the Risks and Uncertainties section of the MD&A included in our 2023 Annual Report.

The reader is cautioned that the foregoing list of factors is not exhaustive of the factors that may affect any of the Corporation's forward-looking statements. The reader is also cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements.

The forward-looking statements in this news release are based on a number of assumptions relating to economic and market conditions as well as the Corporation's operations, financial position and transactions. Examples of such forward-looking statements include, but are not limited to, statements concerning:

• The outlook whereby the Corporation will be able to meet its obligations with cash on hand, cash flows from operations and drawdowns under existing credit facilities.
• The outlook whereby the Corporation is targeting an improvement in annual adjusted EBITDA1 of $100 million over the next 18 months as a result of the Elevation Program initiatives.
• The outlook whereby the initiatives from the Elevation Program will gradually place the Corporation on the path to sustaining an improved financial performance.

In making these statements, the Corporation assumes, among other things, that the standards and measures for the health and safety of personnel and travellers imposed by government and airport authorities will be consistent with those currently in effect, that workers will continue to be available to the Corporation, its suppliers and the companies providing passenger services at the airports, that credit facilities and other terms of credit extended by its business partners will continue to be made available as in the past, that management will continue to manage changes in cash flows to fund working capital requirements for the full fiscal year and that fuel prices, exchange rates, selling prices and hotel and other costs remain stable, the Corporation will be able to adequately mitigate the Pratt & Whitney GTF engine issues and that the initiatives identified to improve adjusted operating income (adjusted EBITDA) can be implemented as planned, and will result in cost reductions and revenue increases of the order anticipated over the next 18 months. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by the forward-looking statements contained in this press release.

The Corporation considers that the assumptions on which these forward-looking statements are based are reasonable.

These statements reflect current expectations regarding future events and operating performance, speak only as of the date this news release is issued, and represent the Corporation's expectations as of that date. For additional information with respect to these and other factors, see the MD&A for the quarter ended July 31, 2024 filed with the Canadian securities commissions and available on SEDAR at www.sedarplus.ca. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities legislation.

SOURCE Transat A.T. Inc.

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