Transat A.T. Inc. - Results of First Quarter 2012

Results hit by fuel costs

• Revenues of $829.3 million, compared with $810.2 millions in 2011.
• Operating loss¹ of $31.8 million, compared with $14.5 million en 2011.
• Net loss of $29.5 million, compared with $13.4 million en 2011.
• Adjusted after-tax loss of $29.9 million, compared with $19.3 millions in 2011.
• Customer deposits of $598.4 million, compared with $537.0 million en 2011.

MONTREAL, March 15, 2012 /PRNewswire/ - Transat A.T. Inc., one of the largest integrated tourism companies in the world and Canada's holiday travel leader, posted revenues of $829.3 million for the quarter ended January 31, 2012, compared with $810.2 million in 2011, an increase of $19.1 million, or 2.4%. The Corporation recorded an operating loss¹ of $31.8 million, compared with $14.5 million in 2011 and a net loss of $29.5 million ($0.77 per share on a diluted basis), compared with $13.4 million ($0.35 per share on a diluted basis) in 2011. Before non-operating items, Transat reported an adjusted after-tax loss³ of $29.9 million in 2012 ($0.79 per share on a diluted basis), compared with $19.3 million ($0.51 per share on a diluted basis) in 2011.

"The results were hit by high aircraft fuel costs, as market conditions made it impossible to increase selling prices sufficiently to fully offset the increase. Meanwhile, we are proceeding as planned with the implementation of 3-year plan to return to profitability, announced last fall," said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

First Quarter Highlights

The decrease in margin stems equally from the Canadian sun destinations market, the transatlantic market and the French outgoing market. It is mainly attributable to rising aircraft fuel costs, which was particularly felt on transatlantic routes, in the wake of the 2011 market conditions. In France, where it's low-season, market conditions on medium-haul destinations were very challenging for the whole industry.

The Corporation's first-quarter revenues increased by $19.1 million. The increase is attributable to higher average selling prices, but was insufficient to offset higher costs, mainly fuel costs. The Corporation recorded an operating loss¹ of $31.8 million, compared with $14.5 million in 2011.

Revenues of North American business units, which are generated by sales in Canada and abroad, increased by $25.3 million (3.7%) compared with the same period in 2011. The increase stems from higher average selling prices despite fewer passengers, compared with 2011. The decrease in the number of passengers results from an increase on the transatlantic market, offset in part by a decrease on the sun destinations market following a decision to reduce capacity. As a result, North American business units recorded an operating loss of $19.1 million, compared with $5.9 million in 2011, attributable to higher fuel costs and intense competition.

Revenues of European business units, which are generated by sales made in Europe and in Canada, decreased by $6.1 million over 2011. European operations generated an operating loss of $12.7 million for the quarter, compared with $8.6 million in 2011. The decreases are mainly attributable to the reduction in the number of travellers following unrest in North Africa.

Financial Situation

As of January 31, 2012, compared to the same date in 2011, cash stood at $214.0 million, compared with $199.0 million; working capital ratio was 0.99 compared with 1.04 and deposits from customers for future travel were $598.4 million compared with $537.0 million. Off-balance-sheet agreements stood at $628.2 million as at January 31, 2012, the decrease since October 31, 2011 being due to payments made during the quarter.

International Financial Reporting Standards (IFRS)

The condensed interim consolidated financial statements for the three-month period ended January 31, 2012 represent the first condensed interim financial statements of the Corporation prepared in accordance with International Financial Reporting Standards ("IFRS"). The 2011 comparative figures have been restated to reflect this change. In summary, the adoption of IFRS has had a minor impact on Transat. It decreased the total equity's carrying value by $25.4 million as at October 31, 2011, compared to previous Canadian GAAP's carrying value as at the same dates. For the three-month period ended January 31, 2011, consolidated net loss attributable to shareholders have been reduced by $0.1 million compared to the figures disclosed under Canadian GAAP in the first quarter of last year. Please see the Management Discussion & Analysis for more details.

Outlook for the second quarter

The Canadian sun destinations market accounts for a very significant portion of Transat's business in the winter. For that market, Transat's capacity in the second quarter is approximately 2% higher than the capacity offered at the same date last year. Load factors are similar; selling prices are higher, but fuel costs and the US dollar are also higher.

On the transatlantic market, capacity is superior to last year and load factors are similar; selling prices are higher, as are fuel costs.

In France, bookings and selling prices are slightly up.

For the second quarter, results could be slightly inferior to last year, as savings stemming from the restructuring implemented in the fourth quarter of 2011 and other cost saving measures should be offset by higher fuel prices.

On the transatlantic market, for the summer, Transat's capacity, load factors, and bookings are similar to last year at the same date. Selling prices and fuel costs are higher in the same proportion. In France, bookings are superior to last year and prices are similar.

The implementation of the measures contained in the Corporation's plan to return to profitability is proceeding.

Additional information

The results were affected by non-operating items, as summarized in the following table:

Hedging—The Corporation records any gains or losses resulting from mark-to-market adjustments of the derivative financial instruments used to manage aircraft fuel price risk in the statement of income. For the first quarter of 2012, this translates into a $1.6 million non-cash gain ($1.2 million after income taxes) compared with a gain of $3.8 million ($2.8 million after income taxes) in 2011.

The Corporation also uses hedging instruments to mitigate exchange rate exposure stemming from its expenses and/or revenues in foreign currencies. Accordingly, under applicable accounting standards, any fluctuations resulting from mark-to-market adjustments of these instruments are recorded in the balance sheet and statement of comprehensive income rather than in the statement of income. For the first quarter 2012, Transat recorded a $0.4 million gain ($0.2 million after income taxes) on these foreign-currency hedging instruments, compared with a $0.4 million loss ($0.4 million after income taxes) in 2011.

Commercial paper—Results for the quarter include a $0.8 million loss ($0.7 million after income taxes) stemming from the revaluation of the Corporation's investments in asset-backed commercial paper (ABCP). In 2011, Transat had recorded a revaluation gain of $3.1 million ($2.8 million after income taxes). As of January 31, 2012, the total accumulated provision represented 33.2% of the notional amount of the Corporation's $115.7 million in ABCP investments.

Summary of non-operational items—Before non-operating items, Transat posted an adjusted after-tax loss of $29.9 million ($0.79 per share on a diluted basis) for the quarter, compared with $19.3 million ($0.51 per share on a diluted basis) in 2011.

Transat A.T. Inc. is an integrated international tour operator with more than 60 destination countries and that distributes products in over 50 countries. A holiday travel specialist, Transat operates mainly in Canada and Europe, as well as in the Caribbean, Mexico and the Mediterranean Basin. Montreal-based Transat is also active in air transportation, accommodation, destination services and distribution. (TSX: TRZ.B, TRZ.A)

NOTES

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

Conference call

First Quarter 2012 conference call: Thursday, March 15, 2012, 2.30 p.m. Dial 1 800-905-9496. Name of conference: Transat. Webcast: www.transat.com. The archived call will be available at 1 800 633-8625 or 416 626-4144, access code 21580097, until April 14, 2012.

Non-IFRS measures

Transat prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). We will occasionally refer to non-IFRS financial measures in the news release. These non-IFRS financial measures do not have any meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They are furnished to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with IFRS. All amounts are in Canadian dollars unless otherwise indicated.

Caution regarding forward-looking statements
This news release contains certain forward-looking statements regarding the Corporation's expectation that the assumptions used in the valuation of the ABCP securities will materialize, and that travel reservations will follow the trends. In making these statements, the Corporation has assumed that the trends in reservations and selling prices will continue, and that fuel prices, other costs and the value of the Canadian dollar against foreign currencies will remain stable. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by the forward-looking statements contained in this press release. Factors that could lead actual results to differ include, among others, extreme weather conditions, war, terrorism, market and general economic conditions, disease outbreaks, demand fluctuations related to seasonality in the travel industry, ability to reduce operating costs and workforce, labour relations, collective agreements and labour conflicts, issues related to pensions, exchange rate, interest rates, future funding, evolution of legal environment, introduction of unfavourable regulations, lawsuits and legal challenges, and other risks detailed from time to time in the Corporation's continuous disclosure documents.

These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements. The Corporation considers the assumptions on which these forward-looking statements are based to be reasonable, but cautions the reader that these assumptions regarding future events, many of which are beyond its control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect the Corporation. For additional information with respect to these and other factors, see the Annual Information Form and Annual Report for the year ended October 31, 2011, filed with Canadian securities commissions. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by securities laws.

SOURCE TRANSAT A.T. INC.

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