Transat AT Inc Q3 2023 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kevin Chiang - CIBC - Analyst : Good morning, and congratulations for putting up some strong results here in the fiscal Q3. Maybe I'll focus on the capacity growth you have Annick, you talked about 23% on the upcoming season. I get the demand is strong, and you're not seeing any real signs of weakness here. But obviously, there's broader concerns in the economy, and maybe over the health of the consumer. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2023 / 2:00PM, TRZ.TO - Q3 2023 Transat AT Inc Earnings Call Just maybe if you can frame what looks to be very large capacity increase within, maybe an economic backdrop, as you pointed out, as being pretty modest, at least in terms of your assumption. Maybe the risks that you see, to maybe over capacitating the market if you do see a weaker consumer?

Question: Kevin Chiang - CIBC - Analyst : That ma'am makes sense. And I'm just wondering, as you kind of look at the booking curve now, are you -- I get the overall demand environment is strong, but are you seeing any changes in terms of where people want to fly due to maybe reflect? Maybe some of the broader concerns that the consumer has? Or are you seeing people fly to maybe less expensive resorts? Or has that behavior not changed as you flow into this winter season versus what you saw last winter when there was an extreme amount of pent-up demand to travel?

Question: Kevin Chiang - CIBC - Analyst : Noted, that is. Maybe just last one for me, obviously strong yield performance as well. Just wondering, and I know this might be difficult to kind of parse out, but if you're to look at some of your internal initiatives as driving yield, whether it's your broader revenue management program, ancillary services, maybe some of the adjustments to your product offering, as you've kind of come out of the pandemic versus just mismatch between the demand and supply driving fares higher. Is there a way to think about how much of this yield do you think might be sticky, for lack of a better word, just based on internal initiatives that you're pursuing, or have been pursuing, as you've been kind of building through this recovery? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2023 / 2:00PM, TRZ.TO - Q3 2023 Transat AT Inc Earnings Call

Question: Kevin Chiang - CIBC - Analyst : Thank you, for taking my questions, best of luck as you close out the fiscal year here. Thank you.

Question: Cameron Doerksen - National Bank Financial - Analyst : Yes, thanks. Good morning. I guess my first question is just around, I guess, the change in the margin expectations here for the full year. I'm just kind of trying to square this because it feels like even the high end of your new full year margin target is pretty conservative, even if we assume that the fuel price that's spiked higher recently has -- stays the same for the rest of the quarter. So maybe you could just detail a little bit more about what your expectations are for Q4. Is there something around where you're hedged relative to Q3? Just any additional, to the color, you can provide here because it does feel like your implied Q4 is maybe significantly weaker than Q3, which given the booking trends doesn't really seem to be what I would have expect?

Question: Cameron Doerksen - National Bank Financial - Analyst : Okay. Are you able to give us detail where you're hedged, and what percentage of your fuel needs are hedged for Q4? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2023 / 2:00PM, TRZ.TO - Q3 2023 Transat AT Inc Earnings Call

Question: Cameron Doerksen - National Bank Financial - Analyst : Okay, okay, that's helpful. Maybe just my second question is around, I guess, the -- you mentioned this on the opening remarks, just around the engine issues with the GTF engines that are used on A321LRs. Have you gotten any indication from RTX said this is going to be any issue for your fleet? Maybe you could just describe what kind of your expectations there, and what scenarios you're planning for?

Question: Cameron Doerksen - National Bank Financial - Analyst : Okay. So if there is an issue where you have to take engines off the plane for an extended period, it's more of a 2025 event, not 2024?

Question: Cameron Doerksen - National Bank Financial - Analyst : How many aircraft would potentially be impacted?

Question: Cameron Doerksen - National Bank Financial - Analyst : Okay. Okay, that's helpful. I'll pass the line. Thanks very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2023 / 2:00PM, TRZ.TO - Q3 2023 Transat AT Inc Earnings Call

Question: Konark Gupta - Scotiabank - Analyst : Thanks, operator. Good morning, everyone. And I echo the congratulations on a pretty good set of results. The first question I wanted to ask about was on the yield. Looking at the page 7 of your presentation, it seems like the yield has been down then up recently. How should we understand this? Does it reflect like a brief period of discounting to stimulate demand, followed by maybe the fuel-driven fare increases?

Question: Konark Gupta - Scotiabank - Analyst : Okay now, thanks. Is there any big lag effect in adjusting the yield or fares for fuel? I think you guys are seeing some rebound in the fuel price now. I mean, obviously hedge and all that, but the industry is seeing the same thing, skinnier just appears a little bit higher here. You're saying in this macro environment, are you thinking demand is a little bit fragile if you raise fares?

Question: Konark Gupta - Scotiabank - Analyst : Okay, that's helpful. Thank you. And then on the balance sheet side, seems like -- that you still aiming the covenant holiday in October. It seems like the interest rate on some debt maturities will increase in the coming months. What's your most immediate priority, Patrick? To repay the high-yield debt with the incremental cash you have on hand now, with the hotel proceeds and all that, or do you want to refinance the debt for longer maturity curve? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2023 / 2:00PM, TRZ.TO - Q3 2023 Transat AT Inc Earnings Call

Question: Konark Gupta - Scotiabank - Analyst : That's great, down the line. Thank you.

Question: Benoit Poirier - Desjardins Securities - Analyst : Yes. Good morning, Annick. Good morning, Patrick, and congratulations for the very strong results.

Question: Benoit Poirier - Desjardins Securities - Analyst : Quick one, you talk about, obviously the engine issue. Then I was curious to know a little bit more about the engine contingency plan, and the potential, maybe to contract out more planes, assuming that some engines need to be retired. I assume that there's enough supply to -- in terms of contingency? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 14, 2023 / 2:00PM, TRZ.TO - Q3 2023 Transat AT Inc Earnings Call

Question: Benoit Poirier - Desjardins Securities - Analyst : Okay, okay. That's great color, Annick. And in terms of capacity, obviously, you stated the 23% increase with four more planes this winter. And looking at the peers, it looks like the winter is bullish. But when we look at Air Canada, Flair and Leaks, will be increasing offering also by significant amount of seats. So it seems that the industry is getting more discipline maybe. But how would you say the market dynamics evolve? Overall you make great color about the pent-up demand that will be there for a few years. But what makes you confident that the industry will stay disciplined given the increased capacity and new players in the Canadian market?