Transat seeks Quebec’s help to cope after huge drop in bookings
Transat AT Inc. is seeking financial assistance from Quebec and Ottawa to help the travel company navigate through a precipitous drop in bookings caused by the coronavirus pandemic.
“We need help,” chief executive officer Jean-marc Eustache told reporters Thursday in Montreal after Transat’s annual shareholders meeting — potentially its last as a publicly traded company.
Montreal-based Transat is in the process of being acquired by Air Canada, having agreed to a $720-million sale in August. The CEO reiterated Thursday he still expects regulatory authorities here and in Europe to make a decision on the transaction by the end of June. He stressed Transat is under no obligation to renegotiate terms of the deal with Air Canada.
Bookings at Transat have plunged in the last three weeks, and are now down about 50 per cent compared with the period last year, chief operating officer Annick Guérard said at the same news conference. Almost all destinations are affected, she said.
“Feb. 24 was an inflection point,” Guérard said. “From that day on, sales started weakening and the gap between this year and last year has been widening daily.”
To make matters more complicated, Air Transat must plan for emergency flights to repatriate stranded passengers. El Salvador closed its borders to foreign visitors overnight, forcing Air Transat to dispatch an empty jet Thursday to bring back Canadian passengers. Other border closures are highly likely in the short term, Guérard said.
“We can potentially envisage other countries in Central America that are going to tell us in the next few days they are closing their borders temporarily,” she said. “Central American counties don’t necessarily have the medical infrastructure to cope with this kind of situation.”
Short-term government support would make it easier for Transat to maintain employee wages, Guérard said. The company is asking authorities to lower fees such as airport taxes and air navigation charges, and wants regulators to accelerate their review of the Air Canada deal to remove unneeded uncertainty.
“This coronavirus situation is going to heighten the vulnerability of many airlines, so we’re asking the authorities to speed up the regulatory process,” Guérard said.
To cut costs and preserve liquidity, Transat has stopped all discretionary spending, eliminated some flights, contacted airplane lessors to negotiate payment deferrals and replaced wide-body aircraft with narrow-body jets on several routes.
As of Jan. 31, Transat had free cash of $682 million. The company also has unused credit facilities.
Capital expenditures have been frozen, meaning that several investment projects have been suspended. For instance, Transat has put a plan to hire 125 cabin crew staff on hold because the hiring spree hinged on a “regular” summer season, Guérard said.
“We are going to do what needs to be done to make sure we get through this difficult period,” chief financial officer Denis Pétrin said.
Transat stock plunged 17 per cent to $10.59 in Toronto trading Thursday after the company disclosed an adjusted loss of $20.3 million for the fiscal first quarter and declined to provide a full-year profit outlook.
The shares were trading 41 per cent below Air Canada’s offer price of $18 a share, leading some analysts to question whether the transaction will close.
The deal “now carries a question mark,” Doug Taylor, an analyst at Canaccord Genuity in Toronto, said in a note to investors.
Transat is offering employees the possibility of a four-day work week or taking sabbaticals in a bid to avoid layoffs, Guérard said. Annual wages amount to about $400 million, she said.
“We are going to look at every potential solution to avoid temporary layoffs,” Guérard said.
Layoffs could potentially last one to three months, depending on the jurisdiction, she said. Executive salaries would also be reduced in the event of job cuts, she said.
While Transat has a long history of coping with crises, whether it’s the terrorist attacks of 9/11 2001, the SARS outbreak in 2003 or the H1N1 crisis in 2009, executives say it’s too early to evaluate the impact of the current pandemic.
“We don’t know how deep this is going to go, how long it’s going to last,” Guérard said.