Air Transat counts on capacity growth despite GTF issues

While load factors for this winter season are a bit behind, Air Transat is positive for the full FY24. The Canadian airline is expecting record-high operating margins next year of between 7.5 and 9 percent. Air Transat plans to grow capacity by 19 percent, despite the operational challenges with almost 40 percent of its Airbus A321LRs grounded for Geared Turbofan maintenance and repairs. Air Transat reported its Q4 and FY23 results on Thursday. The fourth quarter confirmed that the airline is on the up again, producing an adjusted net profit of C$15.676 billion compared to C$-75.930 million in the same quarter last year. Adjusted EBITDA was C$89 million versus C$-11.5 million last year. Revenues were up to C$764.5 million from C$573.1 million. This reflects the improved market conditions with sustained customer demand. At 88.3 percent, the load factor was back at 2019 levels. Yields were 25 percent higher over 2019 thanks to favorable pricing. Q4 includes C$12.7 million in write-off of deferred finance costs as well as a foreign exchange loss on business disposal (C$7.3 million), a loss on long-term debt modifications (C$5.6 million), higher losses on the revaluation of liabilities related to warrants (C$35.4 million), and a less favorable change in the fair value of derivatives (C$7.3 million). Air Transat ended the full year that closed on October 31 with a C$-11.543 million net loss compared to C$-403.7 million in FY22. Revenues improved to C$3.048 billion from C$1.642 billion. Adjusted EBITDA was C$263.3 million versus C$-156.8 million in 2022. Cash flow from operating activities improved to C$321.8 million from C$-177.9 million. The carrier ended the year with C$435.6 million in cash and C$815.8 million in long-term debt. Geared Turbofan groundings The airline says that it will be able to grow capacity in FY24 by 19 percent by adding new aircraft to the fleet and improving fleet utilization from the combined A321/A330 fleet. Utilization is already 14 percent better than in 2019. “This capacity will mainly be deployed to expand frequency and annualize best-performing routes and to service recently announced new destinations.” It will take delivery of four leased Airbus A321LRs between April and June to bring their fleet to 19 aircraft and two more A330s. In FY23, Air Transat received three -LRs, one A321ceo, and one A330. This has brought the fleet to 13 A330s, 15 A321LRs, and 8 A321ceo’s. The uncertainty with the capacity deployment will come from the turnaround times of the Pratt & Whitney Geared Turbofans on the A321LRs. The airline said in September that it expected limited effects. On Thursday, Air Transat said it has three aircraft on ground right now with GTFs that need inspection and replacement of High-Pressure Turbine blades and disks because of durability and powder metal contamination issues. This will grow to five or six aircraft by the end of FY24, so likely between August and October. Air Transat hopes to minimize the effects on the schedule by extending leases, entering short-term leases, improving fleet utilization, and hoping that P&W can provide sufficient spare engines to keep the -LRs flying. Other potential headwinds for FY24 are the slowdown of the Canadian economy, the weaker Canadian dollar, and higher fuel prices. Joint venture with Porter Air Transat has high expectations of the recently announced joint venture with Porter Airlines. The two airlines already had a code-sharing agreement since October 2022 but said on November 28 that they want to enter a JV and combine their networks. This will benefit customers who wish to travel between North, Central, and South America, Europe, North Africa, Mexico, and the Caribbean. Air Transat and Porter say their networks out of Toronto Pearson and Montreal Trudeau airports do not overlap. Combined, the two carriers will serve 80 destinations. The JV will be gradually implemented throughout 2024, but Air Transat says that it will have an almost immediate effect on traffic. Porter customers will feed into Air Transat’s transatlantic and leisure network. Air Transat quantifies this effect to be between 15 and 18 percent when the JV has been fully implemented. Vice versa, Air Transat customers get more options on cross-border and domestic flights within Canada thanks to the Porter network.

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