Transat stock nosedives as hurricane season socks it to revenue
Transat A.T. Inc. reported a strong quarter on Thursday, with revenues increasing by more than 10 per cent from 2016, but warned that destructive storms could impact results going forward as the company continues to evacuate passengers along the path of Hurricane Irma.
The Montreal-based travel company saw its revenues jump from $663.6 million in 2016 to $733.2 million in the three-month period ending July 31, thanks largely to strong travel demand, increased capacity and higher selling prices across all the markets it serves. Transat’s quarterly net income nearly tripled from $9.4 million last year, or 26 cents per diluted share, to $26.6 million, or 72 cents per diluted share.
“Our results are extremely satisfying and the outlook for the fourth quarter is encouraging, despite the recent surge in fuel price and subject to impacts from the hurricanes on some destination programs,” said chief financial officer Denis Pétrin in a conference call with analysts Thursday.
Transat said it expects operating costs in its upcoming quarter to be around the same amount as last year at about $70.8 million. However, the company said the flurry of severe storms may impact the next quarterly results and increase the cost of operations, particularly Hurricane Irma, which has forced the company to evacuate travellers from its various sun destinations. The Category 5 hurricane left several dead and thousands homeless as it ripped through the Caribbean, including Dominican Republic and Cuba, destinations served by Transat.
“The hurricane season has started strongly this year, with Harvey and Irma, and we are monitoring this extensively as it may have an influence for the end-of-summer season, specifically for summer destinations,” Pétrin said.
Despite the positive results, Transat stock fell nearly 10 per cent to $9.08 on the Toronto Stock Exchange.
Mona Nazir, an analyst with Laurentian Bank Securities, said Thursday’s drop was likely due to a combination of factors for the tightly held stock, including uncertainty surrounding Hurricane Irma and related fear that it could have an impact on winter sun destination profitability.
“Transat has historically generated losses in its winter season, with earnings per share loss of $1.20 this year,” Nazir said. “With 35 to 40 per cent of its cost base in U.S. dollars, positive (foreign exchange) tailwinds should mitigate any significant hurricane concern.”
Transat announced earlier this week that it had sent 10 flights to Cuba and another 10 to the Dominican Republic to evacuate vacationers. The company said in Thursday’s call it will also send additional flights to Florida in the coming days.
“This is an operation that obviously adds cost to our operations,” Pétrin said. However, he downplayed how substantial the impact would be on the quarterly results.
“The sun destination program is coming at the end of the season, it’s really in the back-end,” he said. “We don’t want to comment on the impact the hurricane will have. We don’t know. But it is the end of the season. As we speak, we’re not talking about major dollar impact on the (earnings before interest, taxes, depreciation, amortization and rent costs).”
Transat was not the only company sending jets to the Caribbean to evacuate its customers. Air Canada operated 24 additional flights to bring travellers home early from the Dominican Republic, Cuba, Antigua and Providenciales. WestJet also sent planes south to bring customers home.
The outlook for the fourth quarter is encouraging, despite the recent surge in fuel price and subject to impacts from the hurricanes.