With or without Air Canada, Transat prepares for a post-pandemic future. “There is no need to worry about a plan B,” says Transat chief executive
Their airline is grounded, revenues are almost non-existent, a merger with Air Canada is up in the air. So why are Transat executives sounding far more optimistic about the future today than they have in months?
“There seems to be some light at the end of the tunnel, whether or not the transaction with Air Canada is completed,” Transat President and Chief Executive Officer Jean-Marc Eustache told analysts. “The vaccine is there. We can now expect to have it to the bottom, and start moving upwards, again, within months. Studies have shown that people were eager to travel as soon as it will be permitted and safe.”
Transat released first quarter financial results Thursday that can only be described as dismal. Revenues were just $42 million in the first three months of the year. Revenue is down, 94% from the year before and losses amounted to $109 million. It adds up to a heap of uncertainty that casts doubt on the company’s future.
Still, executives are looking forward.
“On the operational side, we are constantly constantly updating and fine tuning a restart plan for a leaner and meaner Transat that will be in a position to play its best cards in a post-pandemic world,” said Eustache. “There is still no certainty, as to exactly when the hand now fast recovery will happen, but it will.”
With or without Air Canada
Transat’s planning is happening on several different tracks.
Plan A is to see through a merger with Air Canada. The two airlines agreed to merge more than a year ago. Since then, Air Canada slashed its offer to just $5 a share. And a February 15 deadline has come and gone without a resolution. The deal’s still alive, but either side can walk away at any time.
So now, as Eustache puts it, plans B and C are on the table.
Plan B involves securing a $500 million loan to stay afloat as an independent operation. That could come from the private market – though even Transat says uncertainty “may cast significant doubt on the Corporation’s ability to continue as a going concern.” So the company may turn instead to a federal large employer emergency loan programme to find the funds.
Plan C involves even less certainty.
“We have heard signals from Quebec that Transat will not be let the down,” said Eustache. The Premier of Quebec is one of Transat’s founders. “And we have taken note of Mr. Pierre-Karl Péladeau’s proposal.” Péladeau is a Quebec businessman who has offered to buy Transat and waged a public campaign against the Air Canada merger. However, he has not publicly reiterated his offer in the past month.
Ottawa has approved the sale, with a condition Transat be kept as a separate entity in Quebec. European regulators are still reviewing the deal.
“For today, there’s still a deal with Air Canada,” said Eustache. “But everybody’s saying we’re supposed to have a plan B or Plan C. You know for sure we have a plan B. We have a plan C. And we will do what we have to do in the timing of this necessity unnecessary. And we will do it.”
Transat is planning to re-start operations in mid-June, with flights to Europe.
“At this point, depending on the travel restrictions in place, we plan to operate a modest program for the upcoming summer,” said Guérard. “Focusing on the markets that will be most attractive in the short term. Mainly the domestics, the US, a few medium-haul sun destinations , and some key VFR European destinations.”
“However, this could be reviewed,” said Eustache. “Depending on several factors; on the restrictions, on the vaccination process, as well as on the coordination between countries and how travel will be managed. Moving forward, establishing protocol and standards that will allow people to travel from one country to the other or from one zone to the other.”
The company is continuing to focus its fleet around the A321LR, supplemented by a few A330 wide-bodies. In the first quarter, Transat returned two A330 to leasing companies. It has seven 321LR in the fleet, with 17 more on order. Transat says the aircraft has “spectacular performance” and will allow it to stop relying on leasing additional capacity during peak winter periods.
“This choice of aircraft is by far the best fleet decision we have made in years,” said Chief Operating Officer Annick Guérard.
“It is an aircraft that we will use at full capacity on a year round basis,” she said. “And it allows us to put an end to our need for seasonal aircraft – a model that had reached its limit.”
“At end of the day, we will be there as stronger than ever,” said Eustache. “Why? We used to have four types of planes. We’re going to have two types of plane. The same pilot can can [fly] the Airbus 321 or an Airbus 330. It’s gonna be the same pilot.”
No refunds without government aid
Transat said it has had increasing talks with the Canadian government over an aid package. The specifics are covered by non-disclosure agreements and no aid has been announced. But Eustache reiterated that the company will not reimburse passengers for cancelled flights without government aid – a position he has held since June.
The issue continues to dog the company. Thursday, when Transat asked on Twitter “Where did you first fly on our wings?” one user replied “Nowhere! You owe me and my family a refund for the vacation that was cancelled in April!”
Nowhere! You owe me and my family a refund for the vacation that was cancelled in April! Maybe take my calls and show some customer service!— Kristen Curran (@little_muppet84) March 11, 2021
When the pandemic hit, Transat cancelled most of its flights. Instead of refunding passengers, it offered vouchers for future travel. In all, Transat is holding $519 million of passengers’ money. The company is facing a class-action lawsuit over the issue, which it intends to fight.
Normal seats for normal people
So Transat sees reason for hope. The company specializes in leisure flights, a market that is widely expected to rebound first.
“We are in the VFR market,” said Eustache, referring to the market for visiting friends and relatives. “So Transat will have the first and we have the right type of product, the right type of plane. How are you going to work with a 777 or 787 with business class of 80 seats? There will be nobody in those planes. All the people will be in the back of the bus. Transat got 12 big seats and the rest is normal seats for normal people.”
Eustache is preaching patience in the short term. But he said he’s not willing to wait another six months for the market to sort itself out. Something will have to give before then. But he’s vowing to continue, one way or another.
“Transat has been there for 42 years,” said Eustache. “They’re gonna be there for the next 10 years, there is no problem about it.”
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