Earnings call transcript: Transat beats Q1 2025 forecasts, stock dips

Transat AT Inc. (TSX: TRZ) reported its first-quarter fiscal 2025 earnings, surpassing expectations with a narrower-than-expected loss and higher-than-forecast revenue. Despite these positive results, the company’s stock fell nearly 3% in pre-market trading, reflecting investor concerns over ongoing challenges and cautious future guidance. According to InvestingPro data, the company’s market capitalization stands at just $44.24 million, following a steep 60.61% decline in stock value over the past year. InvestingPro analysis highlights several critical challenges facing the company, with 10+ exclusive ProTips available for subscribers.

Key Takeaways

• Transat’s Q1 2025 revenue exceeded forecasts by $17.78 million.
• EPS loss was less than expected, beating forecasts by $0.14.
• Stock price declined by 2.99% after earnings release.
• Improved liquidity with cash reserves rising to $389 million.
• Cautious outlook due to economic uncertainties and potential tariffs.

Company Performance

Transat’s performance in Q1 2025 demonstrated resilience, with revenue increasing 5.6% year-over-year to $830 million, building on the company’s broader 7.72% revenue growth over the last twelve months. The company reported an adjusted EBITDA of $20 million, a significant improvement from a $3 million loss in the same quarter last year. However, the net loss stood at $123 million, indicating ongoing profitability challenges. InvestingPro analysis reveals concerning fundamentals, including a high debt burden of $1.55 billion and a current ratio of 0.81, suggesting potential liquidity constraints.

Financial Highlights

• Revenue: $830 million, up 5.6% year-over-year.
• Adjusted EBITDA: $20 million, improved from a $3 million loss in Q1 2024.
• Net Loss: $123 million, or $3.10 per share.
• Cash and Cash Equivalents: $389 million, up from $260 million in Q4 2024.
• Free Cash Flow: $129 million, compared to $39 million in Q1 2024.

Earnings vs. Forecast

Transat’s actual EPS of -1.9 exceeded the forecast of -2.04, providing a positive surprise of $0.14. The revenue of $829.5 million also beat expectations by $17.78 million, marking a strong quarter in terms of sales performance.

Market Reaction

Despite the earnings beat, Transat’s stock fell by 2.99% to $1.62, reflecting investor caution. The decline contrasts with the company’s positive financial results, suggesting concerns over future profitability and macroeconomic factors. InvestingPro’s Fair Value analysis indicates the stock is currently undervalued, though investors should note its high beta of 1.42, suggesting greater volatility compared to the market. For comprehensive valuation insights and more detailed analysis, investors can access the full Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Looking ahead, Transat remains cautious, emphasizing macroeconomic uncertainties and potential impacts from U.S. tariffs and currency fluctuations. The company is focusing on debt refinancing and strengthening its balance sheet, while continuing to monitor market conditions closely.

Executive Commentary

"We are taking a cautious stance when assessing the outlook for the remainder of 2025," said Anik Guerin, President and CEO. Jean Francois Coutinho, CFO, added, "Discussions with the government and other stakeholders are ongoing."

Risks and Challenges

• Continued net losses pose a risk to financial stability.
• Macroeconomic uncertainties, including potential tariffs and currency issues.
• Dependence on successful execution of strategic initiatives like the Elevation program.
• Competition and market dynamics in the airline industry.
• Potential operational disruptions from fleet maintenance issues.

Q&A

During the earnings call, analysts inquired about the impact of tariffs on booking trends and the company’s stance on airport infrastructure privatization. Management indicated no significant impact beyond the U.S. market and expressed support for privatization efforts.

Transat’s Q1 2025 results highlight both progress and challenges as the company navigates a complex economic landscape. While the earnings beat is encouraging, investor sentiment remains cautious amid broader market uncertainties.

Full transcript - Transat AT Inc (TRZ) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen. Welcome to the Transat Conference Call. Please note that this call is being recorded. I would now like to turn the meeting over to Andrean Guigny, Senior Director, Communications, Public Affairs and Corporate Responsibility. Please go ahead, Ms.

Guigny.

Andrean Guigny, Senior Director, Communications, Public Affairs and Corporate Responsibility, Transat: Hello, everyone, and thank you for joining us for our first quarter earnings call ended 01/31/2025. Annette Guerin, President and CEO and Jean Francois Coutinho, our Chief Financial Officer, will provide an overview of the quarter and comment on the current operational situation and commercial plan. Jean Francois will also discuss our financial results in detail. We will then take questions from analysts. Questions from journalists will be taken offline after the call.

The conference call will be conducted in English, but questions may be asked in French or English. As usual, our supplementary disclosure has been updated and is available on our website in the Investor section. Jean Francois may refer to it when he presents the results. Our comments and discussion today may include forward looking information regarding Trumzat’s outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties. Forward looking statements represent Transat’s expectations as of 03/13/2025, and are therefore subject to change after that date.

Our actual results may differ materially from any stated expectations. Please refer to our forward looking statement in Transat’s first quarter news release available on transat.com and on Selak’s book. With that, I would like to turn over the call to Anik for opening remarks.

Anik Guerin, President and CEO, Transat: Good morning. Thank you for joining us for our first quarter conference call for fiscal twenty twenty five. The quarter ended with a better performance compared to the same period last year with revenue growing 5.6% to $830,000,000 and adjusted EBITDA totaling $20,000,000 dollars These results were mainly driven by positive yields, reduced fuel costs and a tight control of operating expenses. Turning to our operating metrics, customer traffic expressed as revenue passenger miles increased 1% in the first quarter of twenty twenty five from Q1 twenty twenty four, reflecting continued demand for leisure travel. Time traffic and a disciplined capacity increase resulted in a yield improvement of 1.7% year over year.

Our load factor in the first quarter was in line with the same period last year. Finally, available seat miles or capacity was up 0.5% across our global network, reflecting our disciplined planning approach. Early in the second quarter, while our load factor has slightly declined, the steady improvement in yield has offset this impact driving revenue growth. With regards to our Elevation program, as of today, the initiatives already implemented will generate an annualized adjusted EBITDA of approximately $37,000,000 We remain fully on track for the program to generate $100,000,000 in adjusted EBITDA by mid-twenty twenty six. As a reminder, the initial phase of the program mainly consists in optimizing our cost structure.

On this front, I am very encouraged by the efficiency gains and cost savings that we have been able to achieve so far, especially those generated through the implementation of technology and AI in our operations. In the coming months, we will continue to implement key initiatives with a special focus in the area of revenue management. As anticipated, the impact on our financial results at this stage has been relatively neutral due to the startup implementation cost, but we expect the benefits to begin to materialize more significantly in the second half of fiscal twenty twenty five. Turning to our operations, as stated last quarter, we do not have aircraft deliveries planned for this year. Our fleet consists of 44 aircraft for the winter season, including a dry lease contracted in 2024 and forty three aircraft for the summer season.

We continue to actively manage the severe negative impact caused by Pratt and Whitney GTF engine issue. The number of grounded aircraft has fluctuated between six and seven during the last quarter and and we anticipate this level of AOG to persist throughout the year. As previously explained, this situation not only escalates cost, but also introduces a substantial degree of uncertainty and volatility to our operation. We continue to press for the conclusion of an agreement with Pratt and Whitney regarding the grounded aircraft for 2025. Regarding our network, we recently announced an exclusive non stop route between Toronto and Berlin.

The service will start next summer with two weekly flights. Other network expansion initiatives include the introduction of Valencia from Montreal starting in June, a new partnership with Air Europa of Spain to further strengthen our presence in the growing Spanish travel market, the other hub in Madrid. We also extended our service to Martinique from Montreal for the summer season as we continue to expand our offering of year round south destinations. We are well prepared for this summer with a robust program and a modest capacity increase. Our network will also continue to benefit from the value created by our joint venture with Porter.

We continue to build on strong organic momentum and forecast a significant increase in additional connecting passengers compared to 2024. On the operational front, we continue to make great progress to deliver strong performance. Our on time performance in the first quarter improved by more than four percentage points year over year, marking a third consecutive quarter of significant progress. As indicated last quarter, the successful in sourcing of passenger and ramp services at Montreal Trudeau Airport has played a key role in this improvement. During the major snowstorms in February, our strong operational performance stood out with remarkable long time performance showcasing our team’s stellar efficiency and challenging conditions.

In addition, our customer satisfaction continued to be strong, consistently meeting our targets throughout the quarter. Our solid operational performance as well as our level of customer satisfaction clearly reflect the hard work and dedication of our team and provide a robust foundation for achieving our broader goals moving forward. Finally, we formally opened negotiations with our pilot union in late January to reach a new collective agreement in 2025, and we are encouraged with discussions that have been productive so far. Looking ahead to the second quarter and the summer season, we are closely analyzing any potential impact of U. S.

Tariffs on our business and consumer sentiment. Transat has limited exposure to The U. S. With only two routes to Florida, representing about 3% of our total ASMs. However, the negative effects of a trade dispute with The U.

S. Could have multiple impacts with two key areas of concern. First, the depreciation of the Canadian dollar already underway directly increase our costs, particularly for fuel and aircraft leasing, which are priced in U. S. Dollars.

Perhaps even more critical is the broader economic uncertainty that such a dispute is creating affecting consumer confidence and in turn potentially impacting travel demand. We recognize this is a highly volatile environment. We are closely monitoring the evolution and continue to factor in into our decision making and forecasting processes. In closing, we are encouraged by the yield improvement achieved in a more disciplined capacity environment. Our yield has maintained its steady growth in the early part of the second quarter, which is compensating for a slightly lower load factor.

While it is still early, these trends are currently carrying over into the summer season. However, given the current macroeconomic uncertainties, we are taking a cautious stance when assessing the outlook for the remainder of 2025. Our Elevation program is progressing according to plan and we remain on track towards achieving our financial objectives. The refinancing of our debt and the strengthening of our balance sheet remain our priority for 2025. We are continuing to explore all alternatives that will allow us to implement an optimal structure over the long term.

In the meantime, work continues at all levels to increase revenues, tighten spending, boost liquidity and improve overall productivity. All teams are mobilized and I thank them once again for their unwavering commitment. This concludes my remarks. Jean Francois will now present our financial results.

Jean Francois Coutinho, Chief Financial Officer, Transat: Thank you, and good morning, everyone. So before reviewing our financial results, I would like to highlight the steps that we have taken to address our debt challenges. Discussions with our main lender, the federal government, which began over eighteen months ago, along with other stakeholders are still ongoing, although a permanent solution has not yet been reached. To provide greater flexibility while these discussions continue and given their complexity, we have recently extended the maturity dates of our subordinated and secured refinancing agreements with the federal government to April 2027 and November 2026 respectively. Additionally, we renegotiated our revolving credit facility extending its maturity to November 2026.

Now let’s take a closer look at our first quarter results for fiscal twenty twenty five. Revenues totaled $830,000,000 up 5.6% from the first quarter of twenty twenty four. This growth reflects a 1.7% increase in yield expressed in airline unit revenues and 1% improvement in customer traffic expressed in revenue passenger miles compared to the first quarter of twenty twenty four. As Henik mentioned earlier, network capacity rose 0.5% in the first quarter from the same period last year. Adjusted EBITDA meanwhile reached $20,000,000 compared to negative adjusted EBITDA of $3,000,000 in the first quarter a year ago.

This improvement reflects revenue growth, a 15% year over year decrease in fuel prices, tight control over our costs and lower aircraft rent expenses. Net loss amounted to $123,000,000 or $3.1 per share in the first quarter of twenty twenty five compared to $61,000,000 or $1.58 per share in the first quarter twenty twenty four, all explained by the variation of the Canadian dollar. Meanwhile, the adjusted net loss was $75,000,000 versus $76,000,000 last year. Moving to our cash flow and financial position. Cash flow from operating activities totaled $169,000,000 in the first quarter of twenty twenty five compared to $111,000,000 in the first quarter last year, mainly driven by favorable changes in working capital balances.

CapEx decreased from $49,000,000 in Q1 twenty twenty four to $23,000,000 this quarter with higher capital expenditures sorry in 2024 primarily driven by an unfavorable maintenance calendar. After accounting for investing activities and repayment of lease liabilities, free cash flow reached $129,000,000 in the first quarter of this year versus $39,000,000 for the same period in 2024. Turning to our balance sheet. Cash and cash equivalents stood at $389,000,000 as at 01/31/2025, up from $260,000,000 at the end of Q4, twenty twenty four. Cash and cash equivalent and trust or otherwise reserved, mainly resulting from travel package bookings improved to $6.00 $4,000,000 at the end of the first quarter, up from $454,000,000 at the end of Q4 twenty twenty four.

Early in the first quarter, Transat received net proceeds of nearly $31,000,000 from the sale and leaseback of a Ford spare engine obtained as a compensation from Pratt and Whitney due to operational disruptions during the twenty twenty three, twenty twenty four period. It should be noted that we have already entered into negotiations for a follow-up agreement with the engine manufacturer related to our grounded aircraft in 2025. Reflecting these proceeds and the change in cash, our net long term debt and deferred government grant amounted to $424,000,000 at the end of the first quarter, down from $543,000,000 at the end of the fourth quarter twenty twenty four. This concludes my prepared comments. We will now open the line for questions.

Anik Guerin, President and CEO, Transat: Thank you.

Conference Operator: We will now take questions from The first question will be from Karnit Gupta at Scotiabank. Please go ahead.

Karnit Gupta, Analyst, Scotiabank: Thanks and good morning. Just maybe going back to your point about impact of the Canadian dollar weakness and macro from the tariff uncertainty. Just wanted to understand, what have you seen so far in the booking curve from both perspectives? Canadian dollar weakness, obviously, you have a lot of international travel and also there’s a wave of boycott USA going on in light of tariffs. So what do you see in your demand curve right now?

Are people slowing down bookings for certain specific markets or is it broad based?

Anik Guerin, President and CEO, Transat: Thank you for the question. So besides The U. S. Market, which remains, as we explained, a very small market for us with only two destinations that we operate on Florida, we have not seen yet other negative impact on our booking curve following tariffs announcements. Of course, we are closely monitoring the situation as it evolves, especially as we enter right now in a strong booking period for the summer.

We are well aware that the current environment is affecting overall consumer confidence, and this could eventually affect travel demand, but we haven’t seen any impact over the last weeks on our the bookings are in our different offering. In the meantime, I think what helps us is that we at the beginning of the year, we’ve decided to deploy limited capacity and this is something that we have control on, control over. So that’s really important. So we remain very disciplined on that side. And the other thing we’re looking at right now given the current environment, we would not be surprised to see more last minute bookings this year.

I think that people potentially will hesitate before making any bookings, better understanding what’s going to happen with the economic environment. But anyway, we’re going to touch wood. So far, we haven’t seen impact besides The U. S. Market on our bookings.

So things are looking good for now.

Karnit Gupta, Analyst, Scotiabank: Okay. That’s encouraging. Thanks. And on the other topic of what’s happening in Canada, I think there’s been discussions about or proposals from the government about privatizing airports. Do you guys have any views?

I mean, how will the privatization impact your business? Will it be beneficial or less beneficial to you guys? And do you support that?

Anik Guerin, President and CEO, Transat: Well, we support, of course, much needed investments in our air infrastructure, especially at our airports in Montreal and Toronto. Canadian aviation infrastructure is funded, as we’ve mentioned, multiple times by a user pay model. So airlines are charged with very high rent, which should be reinvested in infrastructure. In these uncertain economic times right now, we are especially mindful of all these costs in all aspects of the air travel ecosystem and enhancing traveler’s experience should remain a priority. So we want to work closely with the different relevant parties to ensure the best infrastructure for our people.

And we support any evaluation or assessment that are being made to support these objectives. So if privatizing some of the activities is worth helping the whole infrastructure, so we’re not against it.

Karnit Gupta, Analyst, Scotiabank: And that’s very clear. Thank you so much for the time.

Conference Operator: Thank you. Next question will be from Cameron Dirksen at National Bank Financial. Please go ahead.

Cameron Dirksen, Analyst, National Bank Financial: Thanks. Good morning. Wanted to ask a little bit about the yield trends in the winter. I mean overall yields up 1.7%, but interesting that yield on the southern destinations, which would be I guess the

Karnit Gupta, Analyst, Scotiabank: majority of what you’re doing in the winter is actually slightly negative. So I’m just wondering if you can talk

Cameron Dirksen, Analyst, National Bank Financial: about actually slightly negative. So I’m just wondering if you can talk about kind of what you’re seeing there. I mean, it would seem to me that maybe you’re seeing some pretty strong pricing trends on the Transatlantic markets. So if you could confirm that and just see if we’re seeing something similar in the second quarter as well?

Anik Guerin, President and CEO, Transat: Yes. So we’ve seen when we look at yields on the soft market for Q1, we haven’t seen significant growth, as you mentioned. But as we are looking into Q2, we’re seeing positive yields compared to last year. So we’re more looking into as we are speaking right now around a little bit more than 2%. So that’s encouraging.

In the Atlantic market, we’ve seen very positive years in Q1 with 8%. And we are looking around that percentage of close to 6% right now as we look into Q2. And trends are it’s trending positive as we are getting closer to summer as well.

Cameron Dirksen, Analyst, National Bank Financial: Okay. Are you seeing I guess in the bookings you’ve got so far for the summer and I appreciate it’s still pretty early, but that kind of plus 6% you’re seeing in Q2, is that something that you’re seeing into the summer period as well with the bookings you’ve had so far?

Andrean Guigny, Senior Director, Communications, Public Affairs and Corporate Responsibility, Transat: Well,

Anik Guerin, President and CEO, Transat: it’s very early to comment as you’re saying, but what we’re seeing right now is positive compared to last year. Again, it’s early and due to the economic context, we will be careful in our comments.

Cameron Dirksen, Analyst, National Bank Financial: Okay, fair enough.

Anik Guerin, President and CEO, Transat: Nothing

Andrean Guigny, Senior Director, Communications, Public Affairs and Corporate Responsibility, Transat: negative so far.

Cameron Dirksen, Analyst, National Bank Financial: Okay. And just secondly, just on the I guess the refinancing negotiation or discussions, appreciate that these are complex. But is there any kind of update on the timeline of when we can finally get something done here? And I’m wondering if a potential change in government in Canada is going to extend this whole process even

Karnit Gupta, Analyst, Scotiabank: further?

Jean Francois Coutinho, Chief Financial Officer, Transat: Yes. Well, the change in government is obviously hard to speculate if it’s going to slow down or accelerate our process. It’s probably a question for them rather than for us. That being said, discussions with the government, other stakeholders, key stakeholders are ongoing. Like you mentioned, it’s a complex situation and all alternatives are on the table essentially.

So we’re working very hard with them. And because of the complexity of those discussions, I think that the additional room to maneuver that we’ve got from our creditors, mainly the federal government with the maturity extension, I think it helps.

Cameron Dirksen, Analyst, National Bank Financial: Okay. That’s great. I’ll pass it on. Thanks very much.

Conference Operator: Thank you. Next, we will hear from Alice Liu at CIBC. Please go ahead.

Alice Liu, Analyst, CIBC: Hi, good morning. I have a question on just a lot of headlines of Canadians boycotting travel to

Andrean Guigny, Senior Director, Communications, Public Affairs and Corporate Responsibility, Transat: The U. S. Just wondering, are

Alice Liu, Analyst, CIBC: you seeing that impact in the competitive environment for some destinations and Transatlantic market?

Anik Guerin, President and CEO, Transat: I think you’re asking us if we’re seeing any impact on The U. S. Markets, that’s for sure. We talked about it earlier, we had to decrease our overall capacity towards The U. S.

Market by 10%. And as you can have seen as well from other carriers, a lot of Canadian carriers decrease our capacity as well. So there’s definitely a clear impact in terms of Canadian revenue to the UIF. We’re looking as well what the carriers are announcing. So the domestic in The U.

S. Is decreasing as well. Is there questions to see if this capacity is being deployed on other markets? Is that what I heard?

Alice Liu, Analyst, CIBC: Yes. And yes, basically. Are you seeing that like in the competitive environment?

Anik Guerin, President and CEO, Transat: No. I think it’s early. We could anticipate that some of the carriers who have removed our capacity from The U. S. Would deploy elsewhere, but we haven’t seen clear plans so far.

Alice Liu, Analyst, CIBC: Okay. Thank you. And last question I have is, with the challenging winter conditions in February and Delta Airline incident at Pearson, are you should we be mindful of any cost incremental cost in fiscal Q2?

Anik Guerin, President and CEO, Transat: No, not really, no.

Alice Liu, Analyst, CIBC: Okay. Thank you. That’s all my questions.

Conference Operator: Thank you. And at this time, we have no other questions. Please proceed.

Andrean Guigny, Senior Director, Communications, Public Affairs and Corporate Responsibility, Transat: Thank you, everyone. As a reminder, our twenty twenty five second quarter results will be released on Thursday, June 12. Thank you, and have a good day.

Conference Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your line.

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