Transat AT Inc Q3 2024 Earnings Call Transcript

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

Question: Cameron Doerksen - National Bank Financial - Analyst : Thanks very much and good morning. I just wanted to maybe have a couple of questions on the elevation program that you've outlined today. Obviously, $100 million EBITDA improvement is a pretty large number. I'm just sort of looking at some of the initiatives you've kind of outlined today. 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 12, 2024 / 2:00PM, TRZ.TO - Q3 2024 Transat AT Inc Earnings Call And frankly, it doesn't seem like some of these would be enough to kind of add up to $100 million. So I'm just wondering if there's anything else that your kind of contemplating as part of this program that would get you to that kind of a level of operating income improvement?

Question: Cameron Doerksen - National Bank Financial - Analyst : Okay. No, that's great detail on that. Maybe just a follow up, if I sort of -- obviously, this year is a difficult year from a margin perspective. But if I look out to a kind of maybe a more normalized market where you don't have these engine issues and demand is -- and pricing is stable, and you've implemented these initiatives. What do you think the ultimate margin -- EBITDA margin Transat could generate us in the future?

Question: Cameron Doerksen - National Bank Financial - Analyst : Okay. I will pass the line. I appreciate the color. Thanks very much.

Question: Konark Gupta - Scotiabank GBM - Analyst : Thanks, and good morning. I wanted to ask you, first, maybe on the yield environment. Clearly, it got a little bit worse in Q3 than what you were seeing before. It seems like for the next coming quarter, the yield environment kind of remains here. Any changes you have noticed in yield environment recently in the last couple of weeks or so, maybe for the coming quarter with respect to your overcapacity situations. Like it seems like obviously some of the US airlines are saying this, that the capacity is getting better. I'm not sure if that's the same thing in Canada. And then there's also maybe some sort of positive impact of Air Canada flight cancellations by people and maybe they are looking to book on Transat or some other airlines. So any color there would be appreciated. Thanks.

Question: Konark Gupta - Scotiabank GBM - Analyst : Yeah. Thank you. Yeah, that's helpful. That's what I have anticipated perhaps here. Okay. And then with respect to your own capacity, so you guys' again kind of trimmed some for the full year to 9.9% now. Any thoughts why the capacity reduction here? Like it seems like the Pratt & Whitney grounding is better than what you thought before. So what's driving these capacity cuts? 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 12, 2024 / 2:00PM, TRZ.TO - Q3 2024 Transat AT Inc Earnings Call

Question: Konark Gupta - Scotiabank GBM - Analyst : Okay. So obviously, some of the grounding and some of the aircraft delivery challenges are kind of driving that. That's great. And then last one for me before I turn it over. Balance sheet. So if you can provide any thoughts. I know it's too early, maybe, but what are the options that you guys are exploring here? I guess, is balance sheet refinancing the only option here? Are there other sort of new innovative avenues? Any kind of potential discussion about shedding some part of the business or the full business? Any thoughts what can be fixed and how it can be fixed here?

Question: Konark Gupta - Scotiabank GBM - Analyst : Okay. That's really helpful. Thank you so much and all the best.

Question: Tim James - TD Cowen - Analyst : Yes. Thanks. Good morning. I'm just wondering if there are any kind of particular routes or regions that you can point to where industry capacity and pricing pressure is particularly acute, where it's most impactful?

Question: Tim James - TD Cowen - Analyst : Okay. Thank you. My second question, just with regards to the Porter partnership and how that is working. Is there any challenges or negative impacts from Porter's? Anything in their own capacity challenges that's having a negative impact on Transat? And maybe just a general update on your work with Porter.

Question: Tim James - TD Cowen - Analyst : Great. Thank you.

Question: Kevin Chiang - CIBC Capital Markets - Analyst : Hey good morning, everyone. Thanks for taking my questions here. Maybe just -- I know we'll get more information on your fourth quarter call on this evolution program. Just wondering, is there any capital investments required as you embark on this restructuring? Or is it primarily, kind of, I guess, OpEx spend and stuff like that? 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 12, 2024 / 2:00PM, TRZ.TO - Q3 2024 Transat AT Inc Earnings Call

Question: Kevin Chiang - CIBC Capital Markets - Analyst : Okay. And I know this is going to be an unfair question here, especially as many of you weren't in your seats a decade ago. But about a decade ago, Transat did launch a strategic plan to also achieve $100 million of incremental earnings. And if I were to kind of look over that time frame, it's not like you had a 2014 earnings, and then fast forward three years, you had $100 million more. Earnings, effectively, were, in some points, lower. And I always got the feeling that while Transat was executing against the strategic plan at that point in time, and those benefits were being competed away as you got savings, your competitors got more aggressive potentially. Just I guess, wondering, as you think of this $100 million, just how confident you are that it's not coming through the system but gets competed away as you push through your own initiatives here?

Question: Kevin Chiang - CIBC Capital Markets - Analyst : Okay. No, that's fair. And I know we'll get more details in about a quarter's time. Maybe just last one for me. And maybe just touching a little bit on the comments you made in your prepared remarks around Air Canada's ongoing pilot situation here in the press release or news release that came out this morning. I mean your pilot agreement comes due in April of next year. And I think the rule of thumb we've typically used, and correct me if I'm wrong, is kind of 35%, maybe 40% of airlines costs are related to the pilot. And I guess, just given the public comments you just made, it's -- I guess, how would you think about absorbing the type of wage increases, especially in year one that -- that have been kind of [bansheed] around both on the Air Canada negotiations as well as what you've seen south of the border. It just seems like it could be a pretty material kind of immediate cost headwind to you. Like if I said 35% of your $0.5 billion of salary costs were pilots, and all of a sudden, in your year one of the new negotiation, that could be up 20%. Like that's not an insignificant cost impact, given your current earnings run rate. Just, I guess, how do I square that potential outcome for you versus what, I guess, your comments this morning around Air Canada and their own negotiations? Like -- do you think it might be a risk that maybe a year from now that your kind of facing your negotiation with ALPA and, obviously, you could be seeing maybe a more material increase in wage rates than you're currently anticipating?

Question: Kevin Chiang - CIBC Capital Markets - Analyst : 5% of the overall cost?

Question: Kevin Chiang - CIBC Capital Markets - Analyst : That's great color. Can I just ask a point of clarification? When you say 5% of operating costs, does that include depreciation? Or would that be your kind of OpEx less depreciation? Or maybe it doesn't make too much of a difference?

Question: Kevin Chiang - CIBC Capital Markets - Analyst : Right. Okay. That's helpful. And maybe -- sorry, just last one for me. Just as you think of this restructuring you're going to go through, are there any -- is there anything we need to contemplate in terms of restrictions in your labor agreements that you would need to -- I guess, a bridge that you need to cross that you kind of pursue the $100 million? Or are many of these initiatives, do you think the unions are generally agnostic to the -- to some of the levers you plan to pull here? Or they view it as a positive?

Question: Kevin Chiang - CIBC Capital Markets - Analyst : Okay. That's very helpful. Thank you very much and best of luck as you close out the fiscal year.

Question: Benoit Poirier - Desjardins Securities - Analyst : Yeah. Good morning, everyone. Thanks also for the great color around the Porter partnership. So any other potential codeshare agreements that you're looking at that could be incremental to the main one with Porter? And could you maybe give an update on the fidelity program that you're looking to bring eventually?

Question: Benoit Poirier - Desjardins Securities - Analyst : Okay. Thanks. That's great color. And if we look at the Canadian dollar, it has strengthened somewhat over the recent months, fuel price came down. So how much of a tailwind or headwind, both factors, can it be for the fourth quarter so far?

Question: Benoit Poirier - Desjardins Securities - Analyst : Okay. That's great. And for fiscal year '25, I know it's early, but what's your initial take about the capacity that will be -- that could be added for the industry next year, Annick?

Question: Benoit Poirier - Desjardins Securities - Analyst : Okay. That's great color. And maybe last one for me. You mentioned great color about the elevation program, the $100 million improvement in terms of EBITDA, but also the time frame, over 18 months that could propel the margin in the double-digit territory as you answered the first question. Now just in terms of timing, how much of the market environment needs to be supportive to get to the digit? Is it something that, in 18 months, you could achieve? Or you need a market environment that will be much more supportive to get there? I'm just curious to try to get more color about the timing to get back to double-digit territory.

Question: Benoit Poirier - Desjardins Securities - Analyst : Okay. Perfect. Thank you very much for the time.