Transat A.T. Q2 Earnings Call Highlights

Transat A.T. (TSE:TRZ) reported second-quarter results that management said were hit by a “perfect storm” of external pressures, led by a sharp increase in fuel costs tied to the prolonged closure of the Strait of Hormuz and the sudden suspension of operations to Cuba.

President and Chief Executive Officer Annick Guérard said results for the quarter ended April 30, 2026, were “significantly below” the company’s expectations, despite what she described as continued progress on strategic initiatives. She said two external factors reduced adjusted EBITDA by about CAD 95 million: roughly CAD 70 million from higher fuel costs in March and April and about CAD 25 million from the halt in Cuba operations.

“The quarter, and likely the defining chapter of our year, was shaped by two abrupt external shocks rather than underlying execution issues,” Guérard said on the company’s earnings call.

Fuel Costs and Cuba Suspension Weigh on Profitability

Chief Financial Officer Jean-François Pruneau said revenue was relatively stable year-over-year at CAD 1.003 billion, but the company faced an CAD 81 million revenue shortfall related to the suspension of flights to Cuba. He said the company was only able to partially redeploy that capacity because cancellations began on short notice in mid-February.

Adjusted EBITDA fell to a loss of CAD 21 million, compared with positive adjusted EBITDA of CAD 98 million a year earlier. Pruneau said the nearly CAD 120 million year-over-year shortfall reflected several items, including the higher fuel expense, the impact of Cuba, lower compensation from Pratt Whitney and higher labor and general expenses.

Net loss widened to CAD 79 million from CAD 23 million in the prior-year quarter. Adjusted net loss was CAD 105 million, compared with adjusted net income of CAD 5 million last year.

Pruneau said compensation revenue from Pratt Whitney related to grounded aircraft was CAD 5 million in the quarter, compared with CAD 20 million a year earlier. He noted that the prior-year figure covered an extended period from October to April after an agreement signed in April, while the current-year amount reflected only the quarter.

Capacity Grows, but Yield and Load Factor Slip

Transat said available seat miles rose 4.8% in the second quarter, while traffic measured in revenue passenger miles increased 3.9%. Guérard said demand remained strong, but the company’s yield declined 0.7 percentage points after five consecutive quarters of growth. Load factor was 83.8%, down from 84.6% in the second quarter of 2025.

Capacity on south routes, Transat’s main program during the period, increased 1.7% despite the Cuba suspension. Guérard said the short notice of the Cuba cancellations allowed only partial redeployment to other destinations.

The company also continued to face aircraft availability issues tied to Pratt Whitney GTF engines. Guérard said five of Transat’s 42 aircraft were grounded at the end of the second quarter, compared with three initially anticipated. She said the issue is causing operating inefficiencies, increasing scheduling variability and hurting revenue. Transat still expects three aircraft to be grounded this summer, and Guérard said full resolution is not expected before early 2028.

Fuel Surcharges Offer Limited Near-Term Relief

Management said Transat has implemented fuel surcharges on new bookings and reduced network capacity by 6% from May to October 2026 in response to the fuel crisis. However, Guérard said surcharges had only a marginal impact on second-quarter results because most bookings had been made before the conflict in the Middle East began.

Looking to the summer season, Guérard said load factors to date were 0.6 percentage points lower than the same period last year, while yields were 0.6% higher. She said average fares for summer were up 4.5% year-over-year, including the fuel surcharge, but added that if the surcharge had fully held, the increase would have been closer to 15%.

In response to analyst questions, Guérard said the company had initially seen fuel surcharges absorbed by the market, but later increases slowed booking momentum. She said Transat has had to adjust fares on targeted routes and offer flexibility measures, including removing certain modification or cancellation fees depending on fare family, to stimulate demand.

Guérard said it has been easier to pass through surcharges on European routes than on south routes. She cited the Cuba suspension, security issues in Mexico and the ongoing recovery in Jamaica from a hurricane as factors weighing on the south market.

Pruneau said Transat uses fuel hedging strategies based on options rather than forwards, providing a discount mechanism relative to market prices rather than locking in prices. He said those strategies provided some benefit in the second quarter and will continue in the second half of the year. He also said Transat has secured the fuel supply needed to operate its full summer program.

Liquidity Facility and Balance Sheet

Transat said it intends to apply to the Canadian government’s Liquidity for Airline Sector Resilience facility, known as LASER. Pruneau said the facility could provide access to up to CAD 150 million in funding, with amounts determined by the year-over-year increase in fuel prices resulting from the closure of the Strait of Hormuz.

Drawdowns are expected to reflect fuel price increases from May to October and would occur monthly, with the first draw retroactive to May 1, Pruneau said.

Cash and cash equivalents totaled CAD 390 million as of April 30, compared with CAD 387 million at the end of the first quarter. Long-term debt and deferred government grants stood at CAD 320 million, down from CAD 375 million three months earlier and CAD 812 million a year earlier. Transat ended the quarter with a net cash and cash equivalent position of CAD 70 million, compared with net cash of CAD 12 million at the end of the previous quarter and net debt of CAD 280 million a year earlier.

Network Expansion and Loyalty Program

Guérard said Transat continues to diversify its network and reduce seasonality by adding new winter routes and extending some European routes to year-round service. She cited the annualization of Toronto-Paris and Montreal-Barcelona routes and the planned launch of year-round nonstop service between Montreal and Istanbul in October.

She also highlighted partnerships, including collaboration with Turkish Airlines, interline agreements such as a new agreement with Iberia, and the joint venture with Porter Airlines. Transat has launched vacation packages on Porter-operated flights, adding destinations including Nassau and Grand Cayman and expanding options to Mexico.

Asked about Transat’s loyalty program, Guérard said the company is in a beta phase during the summer and is targeting a full commercial launch toward the end of 2026. She said the program is being developed with Desjardins and Visa, including co-branded credit cards announced in January.

For fiscal 2026, Transat expects capacity, measured in available seat miles, to increase 4% to 5% from last year after its latest network adjustments. Management said elevated fuel prices will continue to weigh on second-half results, though surcharges, cost actions and potential LASER facility draws are expected to provide partial support.

About Transat A.T. (TSE:TRZ)

Air Transat is a leading travel brand voted 2025 World's Best Leisure Airline by passengers at the Skytrax World Airline Awards. Its program offers access to international destinations, mainly in Europe, the Caribbean, the east coast of the United States, South America and North Africa. Air Transat is recognized for its excellent customer service. Its fleet includes some of the most energy-efficient aircraft in their category. Based in Montreal with major hubs in YUL Montréal-Trudeau International Airport and Toronto Pearson Airport (YYZ), it has 5,000 employees with a common purpose to bring people closer together.

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