Transat: Our results reflect COVID-19’s devastating impact on travel industry
Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada’s holiday travel leader, announces its results for the fourth quarter and fiscal year ended October 31, 2020.
“Our results reflect COVID-19’s devastating impact across the travel industry,” stated Jean-Marc Eustache, President and Chief Executive Officer of Transat.
“During the year, we took all necessary actions to limit the damage and preserve our cash. The upcoming completion of the transaction with Air Canada should give us the solidity to face the crisis and capitalize on the recovery that should be sparked by the arrival of a vaccine. We have put in place a $250.0 million short-term financing facility and are currently working on replacing it, should the transaction not take place, with an overall financing covering our needs for the year 2021. This financing could also be obtained as part of a support program for the industry, as announced by the government.” stated Mr. Eustache.
The global air transportation and tourism industry has faced a collapse in traffic and demand. Travel restrictions, uncertainty about when borders will reopen, both in Canada and at certain destinations the Corporation flies to, the imposition of quarantine measures both in Canada and other countries, as well as concerns related to the pandemic and its economic impacts are creating significant demand uncertainty, at least for fiscal 2021. In response to the first wave of the pandemic, the Corporation temporarily suspended its airline operations from April 1 to July 22, 2020. Subsequently, the Corporation implemented reduced summer and winter programs and is continuously making adjustments based on the level of demand and decisions made by health and state authorities. The Corporation cannot predict all the impacts of COVID-19 on its operations and results, or precisely when the situation will improve. The Corporation has implemented a series of operational, commercial and financial measures, including cost reduction, aimed at preserving its cash. The Corporation is monitoring the situation daily to adjust these measures as it evolves. However, until the Corporation is able to resume operations at a sufficient level, the COVID-19 pandemic will have significant negative impacts on its revenues, cash flows from operations and operating results. While the likelihood of the availability of a vaccine in the near future makes it possible to hope for the resumption of operations at a certain level during 2021, the Corporation does not expect such level to reach the pre-pandemic level before 2023.
The Corporation has taken the following measures regarding the COVID-19 pandemic:
Airline and commercial operations
- On July 23, 2020, the Corporation partially resumed airline operations after four months of inactivity. A reduced summer program consisting of 23 routes to some 17 destinations was then progressively implemented.
- For the winter program (from November 2020 to April 2021), to adapt to the low demand resulting from the COVID-19 second wave and to continued border restrictions and requirements in Canada and elsewhere, Transat gradually offers a reduced program of international flights departing from Montréal, Toronto and Quebec City.
- Transat provides a simple and safe travel experience at every step. To this end, it has launched its Traveller Care program regarding health measures, which are regularly updated in compliance with recommendations issued by regulatory authorities. It has also assembled a new comprehensive practical guide full of tips to help travellers prepare for their trips and travel with peace of mind.
Cost reduction measures
- In March, the Corporation decided to early retire all of its Airbus A310s from the fleet. Subsequently, the Corporation accelerated the expected retirement of its Boeing 737 fleet as well as some of its Airbus A330s to expedite the transformation of its fleet and make it more uniform (comprising only Airbus aircraft with cockpit commonality) and more adapted to the post-COVID-19 market, in terms of both aircraft size and overall capacity.
- Management and the Board of Directors, agreed on a voluntary temporary reduction in their compensation ranging from 10% to 20%, which was in place until November 1, 2020, with the exception of Executive Officers whose reductions, ranging from 15% to 20%, are maintained until December 31, 2020 and members of the Board of Directors whose reduction of 20% is maintained until February 15, 2021.
- The Corporation has also been negotiating with its suppliers to benefit from cost reductions and changes in payment terms, and has implemented measures to reduce expenses and investments.
- The Corporation has also reduced its investment expenditures where possible without jeopardizing its future development.
- As of the end of March, the Corporation proceeded with the gradual temporary layoff of a large part of its personnel, reaching approximately 85% at the height of the crisis. Following the resumption of airline operations, the Corporation was able to recall a certain number of employees, thereby adjusting its workforce to 25% of its pre-pandemic level.
- As of March 15, 2020, the Corporation made use of the Canada Emergency Wage Subsidy (“CEWS”) for its Canadian workforce, which enabled it to finance part of the salaries of its staff still at work and to propose employees temporarily laid off to receive a part of their salary equivalent to the amount of the grant received, with no work required. As at October 31, 2020, approximately two-thirds of the subsidy received corresponded to compensation paid to employees who were not working.
Financing and cash flows
- In March, as a precautionary measure, the Corporation drew down on its $50.0 million revolving credit facility agreement for operating purposes.
- Since March, the Corporation has been renegotiating with aircraft lessors, as well as other lessors, to defer a number of monthly lease payments.
- On October 9, 2020, Transat put in place a $250.0 million subordinated short-term credit facility with the National Bank of Canada as the lead arranger. This loan facility may be drawn down in tranches before February 28, 2021, subject to the satisfaction of pre-requisites and applicable borrowing conditions. These conditions include certain requirements relating to unrestricted cash before and after a drawdown on the facility. The new loan facility is currently supposed to mature on the earlier of March 31, 2021 and the closing of the arrangement with Air Canada.
- As part of the implementation of the revised arrangement agreement and the new loan facility, Transat has also been able to make certain amendments to its existing senior revolving term credit facility, including the temporary suspension of the application of certain financial ratios, providing Transat with additional flexibility in the context of the current business and economic environment. The amended terms and conditions also include a new requirement to maintain certain minimum levels of unrestricted cash as well as restrictions on the capacity to contract additional loans.
- In order to protect its cash position and allow recovery after the restrictions have been lifted, the Corporation granted its customers a fully transferable travel credit valid without expiry date for flights and packages cancelled due to the exceptional situation and, in particular, to the travel restrictions imposed by governments.