Worst-case scenario: French tour operator’s predictions fail to come true

On Thursday, the French tour operator Transat reported a net loss of $131.5 million for the nine months ending Sept. 30, which was much better than the loss of $109.6 million it reported for the same period in 2017.

In a call with analysts, Transat’s chief executive officer, Jean-Marc Eustache, said that despite declining bookings and higher fuel costs over the summer, the company still experienced significant gains in bookings in the fourth quarter. In particular, Mr. Eustache pointed to the performance of its core mid-ranged tour packages in Canada and Europe, which were up 30 per cent and 12 per cent in booking volumes, respectively.

That bookings performed well reflects the success of the company’s strategy for 2019. As the largest player in the low-cost holiday market — a strategy that was piloted a few years ago with its revenue travel platform Totaljoy — Transat was able to steal business from many of its rivals in the first few months of the year. Now, however, its marketing strategies will shift focus.

“We were ahead of the game, but certainly we need to adjust our marketing and our promotion very, very carefully so that we do not take away from the portfolio of brands that we have,” Mr. Eustache said on the conference call. “We’ve got to manage the business in such a way that you do not sacrifice business for a mere lack of promotion.”

For now, the company’s transformation efforts look like a success. Thanks to some last-minute bookings for its vacation offerings in New Year’s Eve and Valentine’s Day, for example, the company was able to ramp up its bookings for the final three months of the year. This pushed its third-quarter bookings to 55 per cent of capacity and its fourth-quarter bookings to 66 per cent of capacity, up from 44 per cent and 50 per cent a year ago.

But even as its financials improved in the third quarter, the company’s accounts are not quite as healthy as they were when it was focused primarily on international markets. As part of its new operations strategy, which also involves a shift in its focus to Sun Belt destinations like Las Vegas and Miami, Transat has engaged in a significant cash burn. Its third-quarter cash balance fell from $323.2 million at the end of 2017 to $271.8 million at the end of this year. As a result, at the end of last month, the company’s cash and equivalents stood at $192.3 million.

Still, Transat’s results are far from toxic, and are consistent with similar circumstances at other cruise companies. Last week, fellow tour operator Royal Caribbean Cruises Limited reported that it had a combined net loss of $295 million in the third quarter. Much of that loss was due to the cost of purchasing fuel, but even after subtracting that out, Transat’s combined net loss was higher than that of its chief rival, Carnival Corporation, which reported a net loss of $281 million in the third quarter.

One other positive sign for Transat is that, despite record fuel prices this year, its fuel bill is down more than 25 per cent from last year. Still, investors weren’t particularly impressed by its bookings gains. In early afternoon trading on the Toronto Stock Exchange, Transat stock was down nearly 10 per cent.

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