Transat expects to emerge from the Covid-19 pandemic as a true national Canadian airline and, a few quarters into the transformation process, it is banking on the Airbus A321LR to power its new strategy.
In its most recent fiscal quarter, Transat shed the last vestiges of its previous incarnation as a vertically integrated travel company. It announced earlier this year that it would divest its hotel business. That process is almost complete, with just the sale of some parcels of land pending.
In the meantime, Transat has engaged in a radical fleet restructuring and plans to go from four aircraft types to just two, as the last of its Airbus A310s and Boeing 737s exit the fleet. The carrier is retaining its Airbus A330 fleet, but it will go from 20 of the type now to 12 by next summer. By that time, Transat will have 12 A321LRs and seven A320s in its fleet, in addition to the A330s.
The operating economics of the A321LRs offer Transat more flexibility in scheduling, particularly on transatlantic and transcontinental flights. Thinner routes are more feasible with the aircraft than they were with the A330s. “The A321LR is the best aircraft for us for the transatlantic market,” CEO Annick Guerard told investors during the company’s fiscal fourth-quarter and full-year earnings call Thursday.
The A321LRs will allow Transat to expand its footprint in Europe, with new flights from Montreal to Amsterdam, and Quebec City to London, as well as flights from the East Coast of Canada to Los Angeles, Miami, and San Francisco. Transat sees opportunity in the U.S. West Coast from Eastern Canada, and little competition. As the carrier adds aircraft, it could expand into Phoenix and Seattle, Guerard said.
Alliances and codeshares are key to its transformation. Transat is well known and has a robust network in Eastern Canada, but its network in Western Canada is lacking. To bolster its presence in that part of the country, Transat is relying on a newly announced codeshare with WestJet, which is currently under regulatory review.
During the quarter, Transat revealed a new “virtual interlining” platform, “Connectair by Transat,” that allows passengers to book combined tickets with its partners, currently including Avianca and EasyJet, but Guerard said the platform will soon include Vueling as well. Transat will disclose additional codeshare and interline partners in the new year, she added. “This is our growth strategy.”
But the present is less rosy for Transat, which only resumed flying at the end of July. The carrier is recalling employees and back up to 2,000 workers, up from just 750 earlier this year. The plan is to have 3,500 employees by the end of next year. Transat, like most other airlines, is competing for talent in a historically tight labor market, and Guerard said wages have risen from pre-pandemic levels.
The carrier plans to operate about 60 percent of its pre-pandemic capacity this winter, rising to 75 percent by the spring. By the summer of 2022, Transat will be back to about 90 percent of pre-pandemic capacity. Demand has returned more quickly than Transat had forecast. “2022 will be a demanding year,” Guerard said. “But it will also be the most exciting one as the first year into our strategic plan and even more ambitious era.”
Transat has seen some softness in demand after the discovery of the Omicron variant. But booking curves continue to be short — 30-60 days for long-haul flights, versus 100 days before the pandemic — so it is difficult to extrapolate long-term trends. Guerard said the company is planning for periodic flare-ups of Covid-19 and is prepared to adjust capacity to match demand. “We have much more visibility now than we used to have a year back,” Guerard said. “We need to be strong in the nerves and not react too much and wait and see.”
“Omicron will not be the last variant,” Guerad said, adding,” we are getting on a routine on how to manage those ups and downs in the market.”
Transat reduced its monthly cash burn from C$20 million ($16 million) to C$15 million, a level that it expects will continue through the spring due to expenses associated with ramping back up. The carrier reported a C$58 million adjusted loss for the quarter, and C$214 million for the year, on revenues that were C$63 million and C$125 million, respectively. “Revenues are still behind but they are pointing in the right direction,” Guerard said.