Transat A.T. Inc.

Good morning, ladies and gentlemen, and welcome to the Transat AT Inc. Fourth Quarter Results Conference Call. At this time, all lines are in a listed-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require media assistance, please press star-zero for the operator. Also note that this call is being recorded on Thursday, December 14, 2023. And I would like to turn the conference over to Andréanne Gagné, Senior Director, Communications and Public Affairs. Please go ahead.

Thank you. Bonjour et bienvenue à cet appel trimestriel de Transat. Hello everyone and thank you for attending our earnings call for the third quarter ended October 31st, 2023. I'm here this morning with Annick Guérard, President and CEO, and Patrick Duy, Chief Financial Officer. Annick will provide an overview of the quarter and share comments on the current operational situation and commercial plans for the future. Patrick will have to cover our financial results in more detail. We will take questions at the end from financial analysts, and questions from journalists will be handled offline. The conference call will be held in English, but questions may be asked in French or English. As usual, our investor's presentation has been updated and is posted on our website in the investor section. Patrick may refer to it as he presents the results. Our comments and discussion today may contain forward-looking information about Transat's outlook, objectives, and strategies. They are based on assumptions and subject to risk and uncertainty. Forward-looking statements represent Transat's expectation as of December 14, 2023, and accordingly are subject to change after such date. Our actual results will differ materially from any stated expectations. Please refer to our forward-looking statement in Transat's four-quarter news release available on Transat.com and CEDAR+. With that, let me turn over the call to Annick for opening remarks.

Good morning, everyone. Thank you for joining us for the fourth quarter and year-end conference call for fiscal 2023. We are highly encouraged by our financial performance in fiscal 2023 as Transat has solidified its position in the Canadian travel industry. As market dynamics gain momentum throughout the year, our team focused on meeting growing demand, and on further improving operating efficiency. By taking advantage of both external and internal drivers, we exceeded our profitability target for the year with adjusted EBITDA of $263 million or a margin of 8.6% on revenues of $3 billion. These solid results represent a major turnaround compared to fiscal 2022 which was still impacted by the persisting effects of the COVID pandemic. More importantly, we also exceeded 2019 levels on all these metrics. In 2023, we also generated more than $162 million in free cash flow, reflecting in part land sale in Mexico that we used to reduce our debt level. Generating free cash flow has become a key strategic tool for deleveraging as we continue to work on refinancing plans to optimize our capital structure. Patrick will provide you with more details in a few minutes, but this solid improvement in cash flow was a key step forward in executing our strategic plan during the past year. Other notable achievements included pursuing our plan to optimize the size of our fleet to support medium and long-term growth. We ended fiscal 2023 with a total of 40 aircraft up by five year over year and intend to deploy 44 aircraft for the 2024 winter season. Continuing to develop our network by strengthening our best-performing routes, either by increasing frequency or extending service to year-round flights, and launching service to new promising destinations. Improving revenue management practices and increasing ancillary revenue sources, continuing to establish strategic partnerships and alliances, deploying our corporate social responsibility strategy, including our climate action plan. In fact, Transat will be releasing tomorrow its annual CSR report, a comprehensive document that presents our sustainability priorities and highlights our progress in terms of environmental protection, social engagement, and good governance. As for the fourth quarter, driven by robust yields, we delivered revenues of $764 million, 10% above 2019 levels, on 7% less capacity, and with similar load factors. On the profitability side, adjusted EBITDA reached $89 million, capping off a strong second half in which adjusted EBITDA exceeded $200 million. Looking ahead to the new fiscal year, Transat will continue to focus on executing its strategic plan. A key objective of this plan is to grow customer traffic through alliances and our recently announced joint venture with Porter Airlines represent a major step forward in this regard. By combining our respective networks, this JV will offer travelers significant benefits, including enhanced travel options across the markets we serve. This feeder network strategy is designed to accelerate expansion in our respective key markets, which, for Transat, consists of international, medium, and long-haul flights. At full potential, we expect porters connecting flights to account for 15 to 18% of Transat passenger traffic based on both airlines' current fleet growth plan. Turning to another important growth metric, we intend to increase available capacity by 19% in fiscal 2024. This will be achieved by a combination of four different drivers. First, continuing our ongoing efforts to improve fleet utilization. Second, increasing the frequency of best performing routes and European destinations from both Montreal and Toronto. Third, extending service to year-round flights to key destinations. In this regard, we have announced year-round service to Lyon, Marseille, Costa Rica and El Salvador from Montreal, which further reinforces Air Transat's leading position in the Canadian market for travel to Europe and Latin America. Fourth, beginning service to promising destinations such as Lima, Peru and Marrakech, Morocco next summer. South America and North Africa both represent high potential markets for transit. While optimistic about growing the business in 2024, we are aware of potential headwinds. First, we are assessing the full impact of the Pratt & Whitney engine issue, which is also impacting other airlines in the industry. This situation involves the anticipated inspection and removals of certain engines that power A321LR aircraft. From a fleet of 15 LRs, we currently have three aircraft impacted and the number should reach five or six by the end of fiscal 2024. We have contingency plans in place to mitigate any impact and these plans will be adapted to reflect ongoing developments. These include extending and contracting aircraft leases, using our spare engines, transferring certain routes to an Airbus A330. While these measures will involve short-term incremental costs, our objective is to maintain our position in the market. We are working in close collaboration with Pratt & Whitney. They have been supportive on all aspects, including future financial compensation. Further updates will be provided as the situation evolves. Second potential headwind, the uncertain economic environment, which has begun to affect the demand outlook of U.S. airline peers, mainly in regard to domestic travel and off-peak seasons. However, customer demand for international leisure travel from Canada remains favorable. This is supported by our booking curves that remain solid when compared to last year. This is clear evidence that consumers want to travel, and we understand that in the current inflationary conditions, they are looking for a better price if it becomes available. At the moment, we continue to trend slightly above last year's strong yields for both the winter and summer seasons. Meanwhile, the cost of fuel continues to be volatile, and the Canadian dollar remains weak. Although we have edging programs in place for both, any excess volatility may affect profitability in the upcoming year. Finally, Air Transat has been negotiating with its flight attendants to reach a new collective bargaining agreement. We are confident to reach a satisfactory agreement that will not affect customers' travel plans. In closing, I want to thank our 5,000 plus employees for their dedication and hard work. Driven by their passion and talent, we delivered solid financial results in 2023. More importantly, we are also well positioned for accelerated growth in 2024 through our JV with border, capacity expansion initiatives, and increased operating efficiency. Before turning the call to Patrick, I want to take a moment to thank him for his contribution to the company during his tenure as Chief Financial Officer. His experience in financial management and constant commitment helped Transat improve its financial performance and make further strides towards improving its capital structure. We all wish him success in his future endeavors. We were pleased to announce earlier this week the appointment of Jean-François Pruneau as Chief Financial Officer. Jean-François has over 25 years of experience in executive roles at major Quebec and Canadian companies. His extensive experience in leading financing strategies and the financial management of large-scale companies will make him a valuable asset in the execution of our strategic plans. Jean-Francois will join us in a few weeks on January 9th. This concludes my comments. Patrick will now review our financial results.