Transat’s ambitious plans for the summer are running into Airbus’ manufacturing travails, forcing the Canadian carrier to wet-lease aircraft to fulfill its summer schedule.
Transat had expected to take delivery of two Airbus A321LR’s this summer, but deliveries are delayed due to supply-chain constraints at the European airframer, Transat CEO Annick Guerard said on the company’s April quarter earnings results. She declined to specify where the additional wet-leased aircraft will come from or how many, but said they will be sufficient to operate the carrier’s summer schedule.
Transat has 10 A321LRs fleet now, and besides the two that have been delayed this year, expects a further five deliveries in 2023-2024. Guerard said.
Guerard is the second airline CEO this week to comment on Airbus delays. Earlier in the week, Wizz Air CEO Jozsef Varadi noted that although the European discounter has sufficient lift for its schedule, “If you look at Airbus and Boeing, I mean there are strains in the system. They have issues with their own supply chains, and as a result, it is becoming increasingly difficult to get access to new aircraft for the next few years.”
Airbus is ramping up production of its A320-family aircraft to 65 aircraft per month next year, with plans to increase that to 75 aircraft per month by 2025. Although Airbus CEO Guillaume Faury is confident the airframer can meet its targets, analysts have been skeptical and pointed to suppliers that have struggled to hire enough staff in tight labor markets in the U.S. and Europe.
Aside from delivery delays, however, Transat is looking forward to a booming summer. The booking curve is shorter than it was before the pandemic, so forward bookings for summer travel were behind 2019 levels in March and April, but were ahead of 2019 in May, Guerard said. The carrier plans to operate 90 percent of its 2019 capacity during the July and August peak.
Transat’s restructuring as a national Canadian carrier continues. The airline added new flights to Los Angeles and San Francisco from Montreal, and this summer will add Amsterdam flights from Montreal and Quebec City in addition to flights from Toronto. It is focusing on connecting passengers from all over Canada, both on its own flights and through its codeshares with Porter Airlines and WestJet, to Europe over its hubs in Eastern Canada. Transat also is building its fifth-freedom connecting business between the U.S. and Europe, Guerard said. The carrier plans to operate 75 percent of its 2019 transatlantic capacity this summer.
One hurdle for its fifth-freedom business is staffing at Canadian airports, Guerard added. It has had delays at Toronto Pearson, which Guerard said have been resolved. However, due to Covid-19 protocols at Canadian airports, it takes “two to three times longer” to process each passenger, resulting in bottlenecks at passport control, she said.
Transat expects to start generating cash again in July and August. The carrier’s monthly cash burn is now C$3 million ($2.4 million), but that’s an improvement over the C$27 million monthly cash burn in the previous quarter, Chief Financial Officer Patrick Bui said. Transat expects to burn cash again in the autumn after positive cash flow during the summer peak, he said.
The carrier’s summer looks promising, but its fiscal second quarter was beset by the effects of the Omicron variant. January and February were weak, but bookings started to recover in March and have continued on an upward trajectory ever since. Sharply rising oil prices have eaten into its earnings, and the carrier is implementing fuel hedging this summer, although Bui declined to specify what percentage of Transat’s fuel needs will be hedged.
Due to the Omicron variant, Transat reported an operating loss of C$88 million in the quarter that ended on April 30, about the same as it reported last year. Revenues rose to C$358 million in the quarter from C$8 million last year. Given the uncertainty over fuel prices and the progress of the pandemic, Transat is not offering guidance for the rest of its fiscal year. But Guerard is optimistic. “We foresee a strong recovery and will continue to implement all the measures necessary to capitalize on it,” she said.