Transat: difficult to offset higher fuel prices with higher fares for customers

MONTREAL – Transat AT Inc. expects to have a more difficult summer season than last year as a result of a sudden increase in jet fuel prices since April and limited ability to pass along the cost to customers, senior executives told analysts Thursday.

Annick Guerard, the travel company’s chief operating officer, said on a conference call that “we see most of the players in the market not being able to increase their price, at this point.”

It’s always difficult to transfer fuel costs towards consumers when prices change rapidly, she said, and at this time there’s the added difficulty of a nine per cent increase in industry capacity.

That includes new competitors as well as a 15 per cent hike in Transat’s own capacity as it increases flight frequencies to defend its market share.

“(But) we remain optimistic that in the weeks to come the price is going to go up on certain routes,” Guerard said.

“We definitely need all the efforts internally to yield as much as we can (during) the high season, especially July and August, to be able to recuperate on the fuel increase.”

Chief financial officer Denis Petrin said that “bookings remain strong but there has been some pressure on fares recently.”

He added that about one-third of Transat’s inventory of summer season flights and travel packages have not yet been sold, so it’s possible that overall fare prices will rise over the next few weeks during the peak booking season.

As with other travel-oriented companies, Transat has a dynamic pricing system that adjusts to various factors affecting supply and demand.

“Where the pricing will be a couple weeks from now, hard to say,” Petrin said.

Petrin said the company’s operating expenses this year are now projected to be $53 million higher because of the higher fuel prices, compared with a previous estimate in mid-March.

Transat reported earlier Thursday that its profit attributable to shareholders amounted to $6.7 million or 18 cents per share compared with a loss of $8.4 million or 23 cents per share a year ago.

Excluding non-operating items, Transat says it had an adjusted loss of $4.5 million or 12 cents per share for the quarter compared with a loss of $8.1 million or 22 cents per share in the same quarter last year.

Revenue for the quarter ended April 30 totalled $902.0 million, compared with $884.3 million in the same quarter a year ago.

The increase in revenue was driven by a 4.8 per cent rise in the number of travellers in the sun destination market and 10.7 per cent in the transatlantic market, Transat said.

— by David Paddon in Toronto

Companies in this story: (TSX:TRZ)