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Transat Completes Transformation to an Airline as Canada’s Market Heats Up

Madhu Unnikrishnan

March 10th, 2022

Canada’s Transat has completed its rapid transformation from a travel company to a national airline, but is emerging from the pandemic to a rapidly changing Canadian airline market.

The Montreal-based carrier’s fleet renewal is complete. It is now solely an Airbus operator having eliminated its Boeing 737s and 757s to rely solely on A321s and A330s. It operates 29 aircraft today, down from 48 split among four different types just a year ago.

Transat will take delivery of two A321neos this year after having taken seven of the 10 it has on order. The balance are due by 2024. When deliveries are complete, Transat will operate 36 aircraft: 12 A330s, 17 A321neos, and seven A321s.

Transat is working the new aircraft hard, CEO Annick Guerard said Thursday. The carrier plans to operate 90 percent of its 2019 capacity this summer, but with eight fewer aircraft than it had then. Average fleet utilization will be 13 percent higher than it was in 2019, she said.

Much of this is possible thanks to the A321neo, whose operating economics are a match for Transat’s planned summer transatlantic schedule and its newly launched transcontinental flights to Western Canada. Moreover, given the aircraft’s efficiency, Transat currently is not worried about fuel-price volatility caused by Russia’s invasion of Ukraine. “This aircraft has never been more relevant or competitive.,” Guerard said.

But if fuel prices continue to rise, the carrier will raise fares, although no determination has yet been made. Transat has not hedged its fuel needs this year but will consider hedging if the current volatility continues.

Bookings for the summer are almost at the same pace now as they were in 2019, continuing the trend Transat first noticed late last year as Canada eased its travel restrictions. Bookings were strong in November and the first half of December, before turning negative in January and February due to the Omicron variant’s spread. The variant resulted in Transat cancelling 30 percent of its capacity in January and February. But Guerard said the trajectory has resumed, and in recent weeks outpaced 2019. “It is clear that our customers are impatient to travel and to make up all the time when we were forced to stay at home,” she said.

But as the carrier emerges from the pandemic, it’s finding its home market radically transformed. Transat itself — through its metamorphosis from a travel and charter company to a national airline — arguably kicked off this trend last year by announcing the divestiture of its hotels business. It has launched new transcontinental routes to California and Western Canada, and launched a codeshare with WestJet.

And just this week, the carrier announced a codeshare with Porter Airlines — itself planning to become a national carrier — on routes from Halifax and Toronto. This will increase feed into Transat’s transatlantic and transborder networks this summer, Guerard said.

Meanwhile, WestJet’s planned acquisition, announced earlier this month, of leisure carrier Sunwing has raised concerns in Montreal, Guerard said. “We expect a thorough examination of the important competition this raises. We do not see this as good news for customers,” she said, adding that the merger will result in “concentration” in Western Canada.

The merger, however, has so far not affected Transat’s codeshare relationship with WestJet, although Guerard said the carrier is reviewing potential effects. “We will see what’s going to happen in the upcoming months.”

Despite the pent-up demand Transat’s management reported, the booking curve remains very short. At this point in 2019, passengers were booking transatlantic travel for July-September. Now, Transat’s bookings are strong for May-June but have not matched 2019 for after June. “We have had to adapt over the last two years,” Guerard said.

The carrier is working to increase its brand awareness in its new markets. Now, about 30 percent of tickets on its California routes originate in the U.S. By comparison, 45 percent of bookings on its transatlantic flights originate in France and the UK.

Canada’s travel restrictions could hamper international demand. Consumers may not be aware that the country has reopened, or they may be scared off by testing requirements. Transat is putting pressure on the government to lift the antigen testing requirement for re-entry, Guerard said. The company has noticed demand for sun routes in particular is depressed by consumers’ fears of being trapped abroad for testing positive.

Despite the positive momentum, Transat lost money in the first quarter of its fiscal year that ended January 31. The carrier reported an adjusted loss of C$37 million ($29 million), compared with a loss of $54 million last year. Revenues were up sharply, to C$202 million, compared with C$42 million last year. The carrier recalled almost 700 furloughed employees in the quarter, to reach more than 2,700 workers, but Guerard warned that even when the recovery is complete, Transat expects to have far fewer employees than it did before the pandemic.

Madhu Unnikrishnan

March 10th, 2022

Photo credit: Transat predicts a strong summer ahead, although it is not guiding for the rest of the year due to fuel price and Covid uncertainty.  Flickr / south.jets

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