Earnings call transcript: Transat beats Q2 2025 earnings expectations

Transat AT Inc. (TSX:TRZ) reported a notable improvement in its financial performance for the second quarter of 2025, surpassing earnings expectations. The company posted a net loss of $0.58 per share, which was better than the anticipated loss of $0.948. Revenue reached $1.03 billion, slightly exceeding forecasts and marking a 5.9% increase year-over-year. Despite these positive results, Transat’s stock fell by 9.64% in after-hours trading, reflecting investor concerns over future challenges. According to InvestingPro data, the company’s market capitalization stands at $74.86 million, with a revenue growth rate of 5.1% over the last twelve months.

Key Takeaways

• Transat’s EPS loss of $0.58 was better than the expected $0.948 loss.
• Revenue grew by 5.9% year-over-year to $1.03 billion, surpassing estimates.
• Stock price dropped by 9.64% in after-hours trading.
• The Elevation program is on track to deliver $100 million in adjusted EBITDA by mid-2026.
• Ongoing engine issues with Pratt & Whitney continue to ground aircraft.

Company Performance

Transat demonstrated significant progress in Q2 2025, with revenue growth and a reduced net loss compared to the previous year. The company attributed its improved performance to operational efficiencies and strategic network expansions, including new routes to destinations in Mexico and Europe. However, challenges such as grounded aircraft due to engine issues and pricing pressures in European markets remain.

Financial Highlights

• Revenue: $1.03 billion, up 5.9% year-over-year
• Adjusted EBITDA: $98.4 million, compared to $30 million in Q2 2024
• Net loss: $23 million ($0.58 per share), improved from $54 million in Q2 2024
• Adjusted net income: $5 million ($0.12 per share)
• Free cash flow: $140 million, up from $110 million last year

Earnings vs. Forecast

Transat’s actual EPS loss of $0.58 was significantly better than the forecasted loss of $0.948, representing a positive surprise of 38.82%. Revenue also exceeded expectations, coming in at $1.03 billion against the forecast of $1.01 billion, a 1.98% surprise.

Market Reaction

Despite beating earnings expectations, Transat’s stock fell by 9.64% in after-hours trading, closing at $2.53. This decline suggests that investors remain cautious about the company’s future prospects, particularly in light of ongoing operational challenges and a cautious outlook for the next 18 months.

Outlook & Guidance

Transat remains cautious in its outlook, anticipating soft bookings in Q4, especially in European markets. The company projects a capacity growth of 1.5% for the year and continues to focus on operational improvements through its Elevation program. Future guidance includes expected EPS improvements in the coming quarters, with a positive EPS forecast for Q4 2025.

Executive Commentary

• Anik, President and CEO, stated, "We expect the number of grounded aircraft to remain at six or seven for the remainder of the year."
• Jean Francois Prunot, CFO, noted, "This refinancing marks a turning point for Transat."

Risks and Challenges

• Ongoing Pratt & Whitney engine issues affecting aircraft availability.
• Pricing pressures in European destinations.
• Potential softening of travel demand in key markets.
• Macroeconomic uncertainties impacting consumer spending.
• Execution risks associated with the Elevation program.

Q&A

During the earnings call, analysts inquired about the compensation agreement with Pratt & Whitney, which covers 2025-2026 with a maximum compensation of $77 million. Additionally, questions were raised about debt restructuring efforts, which have successfully reduced debt from $773 million to $334 million, with a target leverage below 3.5x in the next 18-24 months.

Full transcript - Transat AT Inc (TRZ) Q2 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 Gagne, Senior Director, Communications, Public Affairs and Corporate Responsibility. Please go ahead, Guignet.

Andrean Gagne, Senior Director, Communications, Public Affairs and Corporate Responsibility, Transat: Hello, everyone, and thank you for joining us for our second quarter earnings call ended 04/30/2025. Alain Guerard, President and CEO and Jean Francois Prunot, our Chief Financial Officer, will provide an overview of the quarter and comment on the current operational situation and commercial plans. Francois will also discuss our financial results in detail. We will then take questions from financial 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 Investors section. Francois may refer to it when he presents the results. Our comments discussion today may include forward looking information regarding Transat’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 06/12/2025, 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 and TransAct’s second quarter news release available on transat.com and on CeteroPlus. With that, I

Anik, President and CEO, Transat: would like to turn the call over to Anik for opening remarks. Good morning. Thank you for joining our second 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 5.9% to over $1,000,000,000 and adjusted EBITDA reaching 98,400,000 These results were mainly driven by favorable yield, lower fuel costs, a tight control of operating expenses and a non cash compensation of $20,000,000 from Pratt and Whitney recorded in revenue. Before continuing on our performance for the quarter, I’d like to highlight an important milestone.

As announced last week, we’ve reached an agreement to restructure our debt. This marks a significant step forward for Transat as it meaningfully de leverages our balance sheet and paves the way for the execution of our business plan with greater agility. It also reinforces the foundation for the continued rollout of our Elevation program, our roadmap to long term sustainable growth. Jean Francois will provide more detail on the structure in terms of the agreement shortly. If we look at our operating metrics for the second quarter, customer traffic expressed as revenue passenger miles increased 1.6% over last year, reflecting continued demand for leisure travel.

Higher traffic and a disciplined capacity increase resulted in a yield improvement of 2% year over year, building on the positive trend observed in Q1, where yield was up 1.7. Our load factor was 84.6%, representing a slight decline from last year. Capacity expressed in available seat miles was up 2.6% across our global network, reflecting disciplined growth. The increase reflects aircraft utilization over longer distances during the winter, mainly by annualizing certain European routes. Meanwhile, capacity for some destinations held relatively steady.

With regards to our elevation program, as of today, the initiatives already implemented are expected to generate annualized adjusted EBITDA of $67,000,000 This marks solid progress over the $37,000,000 reported three months ago. We remain well on track for the program to deliver $100,000,000 in adjusted EBITDA by mid twenty twenty six. As indicated before, the initial phase mainly consisted in optimizing our cost structure. Notably, initiatives related to AI implementation, especially in our call center, form expectations, delivering efficiencies well above initial projections. Encouragingly, we continue to see strong momentum on the cost side, with further opportunities to deepen our impact through targeted initiatives.

In addition, we are progressing on initiatives aimed at enhancing on generation, including new revenue streams and the deployment of enhanced revenue management tools. So far, the initial part of the program has had limited impact on our financial results, but we expect benefits to begin materializing in the half of this fiscal year and have a favorable effect on our bottom line. Turning to our fleet, as previously indicated, it will remain stable at 43 aircraft for the summer season. We are continuing to actively manage the negative impact caused by the Pratt and Whitney engine situation. We expect the number of grounded aircraft to remain at six or seven for the remainder of the year.

As for the network, we are both strengthening and diversifying our offering through two strategic initiatives for next winter. we are taking advantage of the shift in demand from The U. S. To The Caribbean and Mexican markets by offering new exclusive routes. This allows us to add high potential markets to our network like Guadalajara, Mexico, which we will be servicing from Montreal and Martinique with service from Quebec City.

Other launches include a new exclusive route between Toronto and Midland, Colombia, via Cartagena and Toronto to Georgetown, the capital of Guyana. In parallel, we will offer new departure points from Canada to popular sun destinations by adding nonstop flights between Windsor, Ontario to Pontakana, Charlottetown and Fredericton to Cancun. part of our network development plan involves expanding our service to selected European markets year round. This initiative will address increased demand for shoulder season to popular destinations. More specifically, for the winter of twenty five-twenty six, we will extend routes to Bordeaux, France, Valencia and Madrid, Spain.

Consolidating our year round presence in certain key leisure travel markets in France and Spain confirms their strategic importance in air transit network. So all things considered, our network expansion initiatives will increase revenue and improve cost efficiency by leveraging the versatility of our A321 fleet. On the operational front, we continue to make important progress. On time performance in the second quarter improved year over year on all fronts. It was our consecutive quarter of significant progress, mainly driven by the insourcing of ground services at Montreal Trudeau Airport.

Customer service at call centers also further improved reflecting the progressive deployment of AI tools. The overall productivity and performance of our call center continue to surpass expectations and consistently deliver strong results. Looking ahead to the summer season, yields are about 1.7 ahead of last year while load factors are similar. Some destinations are enjoying strong bookings. Europe is holding.

The third quarter is off to a strong start. However, we have observed some softness for the fourth quarter to date. While economic uncertainty is weighing on consumer confidence, travelers still appear willing to travel. However, they tend to wait a bit longer before booking and are looking for seat sales, which have remained successful. We are paying close attention to evolving booking trends and consumer behavior and taking a cautious stance when assessing the outlook for the next eighteen months.

In this context, our focus remains on driving operational improvement through the disciplined execution of the elevation program. Furthermore, the comprehensive refinancing plan we announced last week provides us with greater financial flexibility. This allows us to concentrate more effectively on long term strategic planning while maintaining strong momentum in our operational performance. Finally, I would like to thank our employees for their excellence and dedication. This concludes my remarks for today.

Jean Francois will now present our financial results.

Jean Francois Prunot, Chief Financial Officer, Transat: Thank you, Anik. Good morning, everyone. Before I address our quarterly results, I would like to start by highlighting the refinancing agreement we announced last week and by providing some additional context. This agreement is the combination of eighteen months of constructive discussions with our main lender, and we are very pleased with the outcome. It represents a major milestone in our financial strategy, and it significantly reduces Transat’s debt, a debt that was incurred solely as a result of the COVID-nineteen pandemic.

Following the transaction, our outstanding debt with CEEFS will be reduced by half, from $773,000,000 to $334,000,000 This significant reduction will be achieved through several key steps. At closing, we will repay the $41,000,000 leave secured credit facility in full. The remaining leave credit facilities will be consolidated into a single $175,000,000 facility. We will issue to CEEF a $159,000,000 unsecured debenture. Additionally, we will issue $16,000,000 in preferred shares.

Finally, the existing warrants will be maintained. This transaction not only reduces our leverage, but also extends the maturity of the remaining debt we see to 2,035, providing us with the time and flexibility needed to execute our elevation program. This refinancing marks a turning point for Transat. It strengthens our balance sheet, significantly reduces our annual interest expenses, and enhances our financial resilience. Most importantly, it positions us to pursue our long term strategic objectives with renewed confidence.

Another positive development we announced during the quarter is the agreement we reached with Pratt and Whitney. This new agreement provides compensation to address the direct costs associated with grounded aircraft and covers the calendar years 2025 and 2026. The agreement is similar in structure to earlier agreement concluded last year, whereas the compensation takes the form of credits to be applied towards products and services, including the purchase of two additional spare engines. The credits are for a maximum amount of million dollars or approximately CAD77 million, of which CAD20 million was recorded as non cash revenue during the second quarter. We expect to receive the engines during the summer, and it is our intention to monetize them through a sale and leaseback transaction.

Now, let’s take a closer look at our results for the second quarter of fiscal twenty twenty five. Revenues amounted to $1,030,000,000 up 5,900,000 percent from the second quarter of twenty twenty four. This growth reflects a 2% year over year improvement in yield expressed in airline unit revenues and a 1.6% increase in customer traffic expressed in revenue passenger miles over the second quarter of twenty twenty four. It also reflects the $20,000,000 non cash revenue mentioned a moment ago. Adjusted EBITDA reached $98,000,000 up sharply from $30,000,000 in the second quarter of last year.

This significant improvement reflects revenue growth, an 18% year over year decline in fuel prices, tight control of operating costs leading to a 3% year over year decrease in adjusted CASM excluding fuel, and reduced costs from short term aircraft leases. The net loss was $23,000,000 or $0.58 per share in the second quarter of twenty twenty five compared to $54,000,000 or $1.4 per share in the second quarter of twenty twenty four. On an adjusted basis, we recorded net income of $5,000,000 or $0.12 per share versus an adjusted net loss of $47,000,000 or $1.21 per share last year. Moving to our cash flow and financial position. Cash flow from operating activities totaled $2.00 $8,000,000 in Q2 twenty twenty five compared to $183,000,000 in Q2 of last year, mainly reflecting improved net income before non cash elements.

CapEx decreased from $30,000,000 in last year’s second quarter to $15,000,000 this year, driven by a more favorable maintenance calendar versus last year and the deferral of certain discretionary expenses. After accounting for investing activities and repayment of lease liabilities, free cash flow amounted to $140,000,000 in the second quarter versus $110,000,000 a year ago. After six months, our free cash flow reached $271,000,000 in 2025 versus $149,000,000 in 2024. Turning to our balance sheet. Cash and cash equivalents stood at $533,000,000 as at 04/30/2025, up from $389,000,000 at the end of the previous quarter.

Cash and cash equivalents and trusts or otherwise reserved, mainly resulting from travel package booking, was $296,000,000 at the end of Q2 compared to $635,000,000 at the end of the previous quarter, reflecting the seasonal nature of our operations. As of 04/30/2025, long term debt and deferred government grant totaled $812,000,000 Pro form a of the debt restructuring transaction, this amount is expected to decrease to $384,000,000 Net of cash, long term debt and deferred government grants stood at $280,000,000 as of 04/30/2025, while on a pro form a basis, we would present a net cash position of $104,000,000 This concludes my prepared comments.

Anik, President and CEO, Transat: Just before moving on to the questions, I would like to take a moment to express on behalf of our entire organization, our deepest condolences to the families and loved ones of those affected by the tragic Air India accident. Our thoughts, as well as those of all the people working in the industry, are with them during these difficult times. We will now take questions.

Conference Operator: Thank you. Ladies and gentlemen, if you do have any questions, please press star, star, one on your touch tone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press followed by 2. And if you’re using a speakerphone, you will need to lift the handset before pressing any keys.

Please go ahead and press star one now if you do have any questions. we will hear from Konark Gupta at Scotiabank. Please go ahead.

Konark Gupta, Analyst, Scotiabank: Thanks, and good morning, everyone, and congrats on the debt refinancing that you just completed. Maybe just, you know, one on the patent written compensation. So, can you explain, you know, what’s the delta between the $77,000,000 that’s a maximum amount and the $20,000,000 that you recognized in Q2? Does it mean that the remainder amount will be recognized in revenue in the subsequent quarters or that’s a maximum that you can potentially recognize? I mean, how does the accounting work on that?

Jean Francois Prunot, Chief Financial Officer, Transat: Yeah, the compensation agreement essentially covers the number of aircraft that we have on the ground per day. So we get a compensation per day per aircraft on the ground. So essentially the $20,000,000 that we booked in Q1 just reflect the number of aircraft times the compensation that we got per day. So that means that over time we will book other additional revenues related to the compensation as we have many aircrafts on the ground as we speak. That being said that the agreement caps the maximum amount that we will be able to book over years 2025 and 2026 to US55 million dollars

Konark Gupta, Analyst, Scotiabank: I see. Okay, explains. And do you expect the number of aircraft grounded to continue for the next several quarters?

Jean Francois Prunot, Chief Financial Officer, Transat: Absolutely. You know, we don’t think that this situation will be settled before 2027. So, surely we will book additional revenues for 2025 and 2026.

Konark Gupta, Analyst, Scotiabank: Thanks. And was there any incremental contribution from the financial compensation to EBITDA? So $20,000,000 is revenue that flew directly into the EBITDA line, but anything incremental that impact positively the bottom line? No. Okay.

Perfect. Thank you. The next one I have is on capacity growth. So for the full year, I noticed you guys are now expecting 1%, and I think in the half, you have already done more than 1%. So, sounds like half capacity will be modest to maybe down slightly.

Any pockets where you are scaling back capacity specifically based on the booking curve?

Anik, President and CEO, Transat: No. At what we’re looking right now, we expect to have an annual increase of capacity of 1.5% for the year compared to 2024. And with the booking curve that we’re looking at, we don’t plan to increase any capacity. Considering that we have six aircraft grounded as well for the upcoming summer, So there’s no chance we will increase capacity.

Konark Gupta, Analyst, Scotiabank: Great. Makes sense. Okay. That’s all my questions. Thank you.

Jean Francois Prunot, Chief Financial Officer, Transat: Good morning, Ark.

Conference Operator: Next question will be from Tim James at TD Cowen. Please go ahead.

Tim James, Analyst, TD Cowen: Thanks very much. Good morning. I’m just wondering if you could expand a bit on the competitive environment. You called that out as something that’s challenging revenues currently. Could you kind of talk about what you’re seeing there, the actions of any players that are having a particular impact?

Anik, President and CEO, Transat: Well, when we’re looking at our summer right now, we’ve seen that there’s been a shift in capacity from The U. S. Market to self destination. So we’ve seen an increase in self destination. That being said, the self destination are performing exceptionally well this summer.

We haven’t been affected on The U. S. As you know, as we mentioned in previous quarter, we only operate two routes in Florida. So when we look at summer right now, our yields remain above 2024, load factor are currently slightly below last year. Stock market is rigorous.

And the rest, we’ve seen a little bit of shift as well from some players on the European destination, creating downward pressure on pricing for this upcoming summer.

Tim James, Analyst, TD Cowen: Okay. Anik, I believe you called out some kind of softening showing up for as you look to the fourth quarter. I assume you’re referring more to Europe there, the Transatlantic. Any particular sort of regions that are weaker or stronger than others? Or is it fairly broad based across your key Transatlantic markets when this softness, this kind of slower booking that you’re seeing?

Anik, President and CEO, Transat: It’s across the network, exactly on European destinations. This is what we’re seeing right now. However, we tend to see a little bit of late minute bookings. So we’re being careful, you know, when we talk about the outlook. But so far, looking at the past weeks, we can see that bookings have been soft on Europe.

With the uncertainty in the market, the economic environment, this is a little bit what we were expecting, and this is why we are gonna be careful, you know, looking at the eighteen upcoming months. People tend to wait and see what’s gonna happen. People are gonna keep their job, how it’s gonna how the economy is gonna is gonna move forward. So this is what we’re seeing right now.

Tim James, Analyst, TD Cowen: Okay. Great. Thank you very much.

Conference Operator: Thank you. Next, we will hear from Michael Kuprios at Desjardins. Please go ahead.

Michael Kuprios, Analyst, Desjardins: Thank you for taking my question. On the on the new agreement in place for the the restructuring of the debt that that you’re encouraging the pandemic, the lower rates and and some of the grace periods seem to translate into pretty significant interest expense savings. You have an idea of, like, the fair new quarterly run rate moving forward for interest expense? I think you’re close to 40,000,000 a quarter right now.

Jean Francois Prunot, Chief Financial Officer, Transat: No. We’re 40,000,000 a year, you know, for the for the debt, excluding the leases, obviously. So we will we will be closer to 5,000,000 a year.

Michael Kuprios, Analyst, Desjardins: Perfect. That that’s helpful. And in terms of the the new favorable agreement in place for the debt, would you say that you now have a new realistic leverage target maybe over the medium term that could be realistic and maybe some timeline guidance on how you’re going to get there?

Jean Francois Prunot, Chief Financial Officer, Transat: Yeah, of course. Obviously, getting out of this transaction, we understand that our leverage is not quite in par with industry standards. We would certainly look over to the next, I would say eighteen to twenty four months to get that to get back in more normalized levels. So I would say that over eighteen to twenty four months, we should be closer and below 3.5 times. And the objective obviously is to go closer to 2.5 times.

Perfect. I really appreciate the color.

Konark Gupta, Analyst, Scotiabank: Thank you.

Conference Operator: Thank you. And at this time, it appears we have no further questions registered. Please proceed.

Andrean Gagne, Senior Director, Communications, Public Affairs and Corporate Responsibility, Transat: Thank you, everyone. As a reminder, our twenty twenty five third quarter results will be released on Thursday, September 11. 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.

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