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Transat A.T. Inc. - Results for Fiscal 2001 - Revenues increase but results are undermined by the events of September 11
- For the first time, revenues exceeded $2 billion, an increase of approximately 10%, due mainly to an excellent 2000-2001 winter season.
- The events of September 11 caused a drop in demand in September and October, reducing income to $2.7 million before unusual items, taxes, and goodwill charges.
- A reduction in capacity, a write-off of certain assets, and other expenses resulted in unusual charges of $94.8 million after taxes.
- Transat recorded a net loss of $99 million ($3.07 per share) after unusual items and taxes, compared with a net income of $36.6 million ($1.14 per share) in 2000.
- Capital injections and a gradual resumption in demand mark the first quarter of 2002.
Transat A.T. Inc., the leader in Canada's holiday travel industry, recorded revenues of $2,121.9 million for the year ended October 31, 2001, compared with $1,922.6 million in 2000, an increase of approximately 10%. The Corporation recorded an income of $2.7 million before unusual items, taxes, and goodwill charges, compared with $67 million the previous year; the difference was mainly caused by the drop in demand; by the increase in certain costs, and by the strength of the U.S. dollar.
In September, projecting a winter 2001-2002 season that would be seriously affected by the events of September 11 and the resulting drop in demand, the Corporation announced a major reduction of capacity that translated subsequently into the write-off of certain assets and exceptional expenses. These combined with other non-recurring charges represent a total of $94.8 million after taxes.
Consequently, for fiscal 2001, Transat reported a net loss of $99 million, or $3.07 per share, compared with net income of $36.6 million, or $1.14 per share in 2000.
"These results are disappointing," stated Jean-Marc Eustache, President and Chief Executive Officer of Transat A.T. Inc. "Nevertheless, they reflect the impact of unusual items, most of which involve no cash outflows and which resulted from decisions we made quickly to avoid a more serious crisis. On September 24, we began the implementation of a plan to reduce Transat's capacity by 25%. This included the layoff of a quarter of our employees, a reduction in airline capacity (number of flights and seats), wage freezes for non-unionized employees, wage cuts for management, and other austerity measures. But we continue to serve all our destinations, and vacationers' plans will not be compromised in any way," he continued.
Fiscal 2001 highlights
The results of the winter 2000-2001 season were excellent, with a 20% growth in revenues and a 25% increase in net income for the first six months of the year. While growth was in part attributable to acquisitions, it came primarily from higher sales volumes and price increases.
The second half of the fiscal year was more difficult than anticipated, due to a slowing economy, fierce competition, overcapacity in air transportation in Canada, and the resulting pressure on prices. Demand also slumped in certain markets, this before the decline in all markets after September 11. Finally, the continuing strength of the U.S. dollar and the increase in costs including aircraft maintenance costs had an unfavourable effect on margins.
Following the implementation of measures to reduce capacity announced on September 24, in the fourth quarter the Corporation recorded unusual charges and non-recurring expenses totalling $117 million before taxes, or $94.8 million after taxes. In particular, these items included the write-off of assets linked to the accelerated retirement of seven L-1011-150s from Air Transat's fleet ($74.8 million), layoff and restructuring costs ($7.1 million), charges connected to an incident in the Azores in August 2001 ($5.3 million), and other write-offs ($29.8 million).
For the fourth quarter, the Corporation posted revenues of $401.3 million, compared with $467.3 million for the same period the previous year.
For the quarter, the Corporation recorded a loss of $40.8 million before unusual items, taxes, and goodwill charges, compared with an income of $21.6 million in 2000. After unusual items and taxes, the net result for the quarter was a loss of $120.7 million, compared with a net income of $14.1 million in 2000.
During fiscal 2001, Transat pursued the implementation of its strategy for vertical integration and growth. The Corporation thus increased its interest in World of Vacations from 35% to 100% during fiscal 2001, and then merged it with Regent Holidays and pooled certain resources with Nolitour. Transat also acquired the tour operator Rêvatours, which specializes in upscale tours and certain destinations, and acquired a 50% interest in Jonview Corporation, thus becoming the leading incoming tour operator in Canada.
With regard to services at destination, the Corporation acquired a 40% interest in Tourgreece, a longstanding partner based in Greece, and created a division that provides services at destinations in Mexico. Finally, with regard to distribution, Transat acquired travel agencies in France and in Canada, including the Canadian franchisor Travel Plus, a network of 84 agencies.
Events subsequent to October 31
During the first quarter of 2002, CDP Capital d'Amérique, a subsidiary of the Caisse de dépôt et placement du Québec, and the Solidarity Fund QFL - two of Transat's major shareholders - agreed to a contribution to the Corporation and to its wholly owned subsidiary Air Transat of $10 million each in the form of non-convertible debentures. Management of the Corporation and subsidiaries also invested nearly $1.9 million using a similar financial vehicle. In addition, the Corporation was able to renew to February 2003 its revolving credit facilities, which were to come due February 2002. It also obtained the release of collateral that improved the cash available by $20 million.
As the Corporation has indicated on several occasions, the number of daily reservations on the Canadian market dropped sharply, namely by more than 50%, in September and October, compared with the same period the previous year. Subsequently, demand gradually increased, and the number of daily reservations at the end of December 2001 and thus far in January 2002 was 10% to 15% lower than for the same period a year ago.
The Corporation believes that the cumulative effect on Canadian operations for the winter season will be a decline in volume of 20% to 25% compared with the previous year. In France the decline in volume will be decidedly less pronounced. It is too soon to measure the impact on volume for the summer season. As for prices, they continue to be under considerable pressure, resulting above all from fierce competition between tour operators when supply exceeds demand.
"Although the situation has significantly improved and the Corporation has benefited from a much better position since Canada 3000 and Canada 3000 Holidays ceased operations, demand remains lower than at the same time last year and uncertainty prevails. The winter and summer seasons will continue to be affected by the events of September 11. We and our employees are making every effort to bring the Corporation back to profitability and to ensure that it is in a position to take full advantage when the travel industry returns to normal. International tourism is a durable phenomenon that has been growing for fifty years. We are in a good position to benefit from the eventual return to growth," concluded Mr. Eustache.About Transat A.T. Inc.
Transat A.T. Inc. with its head office in Montreal is an integrated company specializing in the organization, marketing, and distribution of holiday travel. The core of its business consists of tour operators in Canada and France. Transat is also involved in air transportation, hotel management, and value-added services offered at travel destinations, as well as in distribution through travel agency networks and e-commerce initiatives. Transat, a public corporation listed on the Toronto Stock Exchange (TSE:TRZ), recorded revenues exceeding $2 billion in 2001.