Canada's Transat Walks Away From Hotels to Refocus on Airline

Canada's Transat is abandoning its vertically integrated travel company model to refocus on its core airline business, with plans to retool its network to ferry passengers from all over Canada to transborder and other international destinations through its hubs in Eastern Canada. The move is a strategic shift for the company, which only a few years ago touted the value in its vertical model.

The pandemic forced the change and gave the company time to reevaluate what its core business should be. On May 20, the company discontinued its hotel division and will not invest further in the sector. Tours will remain an important revenue stream — but not an area of focus — as the company prioritizes its airline operations. "We are not to our full potential as an an airline because we were focusing on being a tour operator, a travel agency, and on hotels," said CEO Annick Guerard, who took the helm of the company from Jean-Marc Eustache on May 27. "Now we need to refocus and to be much better as an airline company."

Not that the carrier is doing much — or any — flying right now. When Canada closed its borders to Caribbean and Mexican destinations in January, Transat suspended all commercial flights. The carrier now expects to resume operations on July 30, provided Ottawa lifts border restrictions. When it does, Transat will offer fewer point-to-point flights and focus its network on its connecting passengers through its Montreal, Quebec City, and Toronto hubs. Instead of point-to-point flights, Transat will offer more frequencies on fewer routes. This new strategy will expose Transat to less seasonal variation and will increase aircraft utilization, Guerard said during the company's fiscal second quarter earnings call Thursday.

Part of this shift in strategy was informed by the collapse of merger talks between Transat and Air Canada last month after regulators raised antitrust concerns. Instead, Transat is now in talks to pursue alliances and partnerships with other airlines, although Guerard declined to specify which carriers Transat is in discussions with.

The carrier is also in the midst of a fleet and fleet-strategy transformation. Transat is returning the last of its Boeing 737s and has retired its Airbus A310 fleet. It will have just two aircraft types from now: Airbus A330s and A321s. Crews will be able to operate either, reducing fleet and scheduling complexity. In addition, Transat will no longer lease aircraft during the winter for seasonal lift during what had been its peak season and will up the daily utilization rates for its existing aircraft — all part of its focus to reduce seasonality and increase frequency on key routes, Guerard said. "Overall, the average use of our aircraft was always below, compared with WestJet and Air Canada," she said, adding: "We had too much seasonality and were not using our aircraft enough during the weekdays or even within each day."

Transat is not straying too far from its roots, though. Guerard emphasized that the company will continue pursuing leisure travel. "We want to capture all the leisure traffic there is between Canada and the U.S., the Caribbean, and South America, while getting stronger in Europe," she said. "The way for us to become even stronger is not to do as many routes but to do them in an efficient way."

The carrier is optimistic that winter leisure travel will rebound. Guerard pointed out that during lockdown Canadians saved significant sums of money and thinks that they will use some of those savings for winter getaways. Still, Transat will not deploy as much capacity this winter as it did in 2019. "We never know what may happen," Guerard said of the pandemic and future restrictions. "We are being prudent."

During the quarter, Transat took a C$700 million ($579 million) emergency loan from the Canadian government. Of this, C$310 million will go toward refunds for passengers whose travel was cancelled during the pandemic and to whom Transat had offered travel credits. The remaining C$390 million will be used to fund Transat's restart and to tide it over until revenue picks up.

Revenue in the quarter plummeted. The carrier reported C$8 million in revenue in the quarter, down from C$572 million last year, a quarter that also showed the pandemic's effects. Transat's quarterly net loss was C$103 million. Daily cash burn was C$1 million. The carrier expects to return to profitability by 2023, after gradually ramping up operations from July 30 through next year.