Transat A.T. Inc.

Good morning, ladies and gentlemen. Welcome to the Transat conference call. This call is being recorded. I would now like to turn the meeting over to Ms. Andréanne Gagné, Senior Director.

Thank you, Sylvie. Hello, everyone, and thank you for attending our earnings call for the first quarter ended January 31, 2024. I'm here this morning with Annick Guérard, President and CEO, and Jean-François Pruneau, our new Chief Financial Officer who joined Transat early January and who is pleased to be presenting to you for the first time this morning. Annick will provide an overview of the quarter and share comments on the current operational situation and commercial plans for the future. Jean-François will ask to cover our financial results in more detail. We will then take questions from financial analysts. Questions from journalists will be handled offline after this call. The conference call will be held in English, but questions may be asked in French or English. As usual, our investors' presentation has been updated and is posted on our website in the Investors section. Jean-François 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 that are based on assumptions and subject to risk and uncertainties. Forward-looking statements represent Transat's expectation as at March 14, 2024, and accordingly are subject to change after such date. Our actual results could differ materially from any stated expectation. Please refer to our forward-looking statement in Transat's first quarter news release available on Transat.com and CDAR+. With that, let me turn the call over to Annick for opening remarks.

Good morning, everyone. Thank you for joining us for our fiscal 2024 first quarter conference call. Transat's financial results reflect sustained demand for leisure travel and a solid increase in traffic as revenues grew 17.7% year-over-year to $785 million. However, industry-wide structural challenges, including costs related to Pratt & Whitney GTF engines, applied downward pressure on profitability. As a result, adjusted EBITDA was negative 8.6 million in the quarter, while net loss totaled 61 million. Let me remind you that historically, the first quarter has been seasonally weak for Transat. Jean-François will provide you with more details in a few minutes. Before turning to operating metrics, I want to highlight one important recent development. Last month, we announced a new collective agreement with our flight attendants, effective until October 2027, providing long-term stability in our relationship. You may recall that the union was vocal about our negotiations and the possibility of a strike. The media exposure clearly affected bookings and yields over the last three months a period that typically experiences robust reservation activity. Given the uncertainty, customers were cautious about booking for the holiday season as well as for the winter season. The effects witnessed in the first quarter carried into the second quarter. The agreement reached three weeks ago removed the uncertainty. Our flight attendants play a key role with our customers. Their passion has allowed us to build the solid reputation we have today. They're at the forefront, dedicated, and committed. By offering them better working conditions, we firmly believe we're making a sustainable investment in Transat's future. During the quarter, we've also continued to improve our operations, reporting significant progress in on-time performance. Our performance improved for each month of the quarter. December was especially remarkable with a 15% year-over-year improvement, despite a marked increase in the volume of activity. Another good news on the commercial front is our recently announced partnership with CF Montreal. We signed a multi-year agreement with the Montreal-based soccer team to become an official partner. This will enhance Air Transat's brand recognition not only across different cultural communities, but also towards families, which have been a key target audience for Transat for years. Over the years, Air Transat has always been more than an airline. It's an ambassador for our city and a bridge between cultures, much like CF Montreal. Turning to operating metrics, traffic increased 20% from the first quarter of 2023, while overall capacity increased 25% during the same period. Industry-wide capacity increase to some destinations led to pressure on yields. A significant increase in capacity and growing uncertainty about the negotiation process with our flight attendants resulted in a 3% decline in yield, while our load factor lost 3.5 points compared to last year's first quarter, ending at 80.2%. Lower yield is also a reflection of consumers' price-sensitive behavior in the current economic context. a behavior we've been observing over the past few months. In response to the strike threat in the last quarter, we have deployed additional promotional activities. These efforts have shown solid year-over-year improvements in the number of passengers, transactions, and revenues. Despite low factor and yield trends for summer 2024 tracking in line with the same period last year, We don't foresee the same uplift exhibited last summer. After an exceptional summer last year, airfares now seem to normalize for 2024. This said, several programs continue to show strong performance, and we are pleased with early results of additions to our flight program, such as our routes to Marrakech and Lima, and the annualization of several destinations, including Lyon and Marseille. They are all presenting results above expectations with solid low factors, excellent yields, and good booking velocity. Moving to our forecasted capacity increase for fiscal 2024, we revised our growth plan mainly due to structural issues affecting the industry. First, the aircraft leasing market has been under significant pressure. Due to the operating challenges caused by the Pratt & Whitney engine situation, as well as the problems affecting the Boeing 737 MAX 9, a great number of carriers are looking for aircraft. These issues, combined with an already stressed supply chain, are putting important pressures on the availability and the cost of aircraft leasing. We currently have four aircraft grounded due to Pratt & Whitney situation, a number that is expected to increase to five or six by the end of the current fiscal year. Consequently, in light of expected grounded A321LR aircraft, we have recently secured three A330 aircraft leases to support network needs for upcoming years. As planned, we expect to have four new A321LR delivered to our permanent fleet over the next month. In the context, we have cautiously reduced our fiscal 2024 planned capacity increase, which we now expect to be 13% compared to 19% previously. In closing, although Transat experienced a more challenging start to fiscal 2024 than expected, we remain committed to executing our strategic plan. The agreement with flight attendants not only eliminates uncertainty for our customers, but also enables us to dive back into the execution of our priorities, which include restructuring of our balance sheet, implementing our commercial GV with Porter with the first phase being deployed this summer, pursuing the deployment of our internal optimization program to increase the efficiency of our operations, deploying solutions to significantly improve revenue management, including generating more ancillary revenue per passenger. At the core of our strategic plan is the commitment to providing customers with an outstanding travel experience and cultivating a positive working environment for employees. We believe we are making the appropriate adjustments to reflect a demand environment that remains firm. This is highlighted by our solid cash position and the record customer deposits for future travel in excess of $1 billion at the end of the first quarter. Nevertheless, we remain prudent about our performance for the entire fiscal. A continuous monitoring of the Pratt & Whitney GTF engine situation an adaptive contingency plan, and a satisfying settlement with Pratt & Whitney will be key to the rest of the year. This concludes my remarks. Jean-François will now review our financial results.