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As Europe’s allure dims, Transat turns eyes east

Air Transat

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Tour operator Transat A.T. Inc. is exploring expansion to Asian destinations to diversify from its traditional offerings of packaged European vacations.

Transat is mulling its Asian options at the same time that Air Canada is turning its attention to potentially better growth prospects in the region as the euro zone debt crisis deepens.

"We are facing a difficult market in Europe," Transat chief executive officer Jean-Marc Eustache said during a conference call Thursday, after the company announced it lost $13.2-million in its second quarter.

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Montreal-based Transat's overall bookings from Canada to Europe have been flat, but demand is faltering for trips made by Europeans.

Transat is reducing its May-to-October seat capacity between Canada and Europe by 4 per cent, compared with the same period last year, as analysts caution about softening transatlantic bookings for destinations such as Greece and Spain.

Amid uncertainty in the European tourism market, Transat sees potential in its Vancouver operations for launching trips to Asia.

"I just sent a couple of people in Asia a few months ago, and a few weeks ago again, to look at that market and to talk to our colleagues in Asian countries," Mr. Eustache said. "Yes, it's something that we should look at."

It's something Air Canada chief executive officer Calin Rovinescu is also considering; he recently shifted focus to Asia from Europe for a proposed Vancouver-based discount airline.

But the national carrier's preparations won't alter Transat's scrutiny of Asia and its long-term strategy to return to profitability, Mr. Eustache said.

"You have to ask Calin to know what exactly he wants to do with his low-cost carrier in Asia. I'm not a carrier, don't forget that. I'm a tour operator," he said, emphasizing that Transat specializes in combining charter flights with hotels in vacation bundles.

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"I will never be an airline. I'm not interested to be an airline. I'm in the tourism business."

Transat offers charter service between Vancouver and Europe, including destinations such as London, Paris, Amsterdam and Frankfurt.

Captain Sylvain Aubin, chairman of the Air Transat unit of the Air Line Pilots Association, said he supports Transat's efforts to examine Asia as a possible long-term revenue source. "The European market is in bad shape, so it affects our performance," Mr. Aubin said.

By contrast, Air Canada Pilots Association president Paul Strachan said his union opposes Mr. Rovinescu's quest to locate a low-cost international carrier in Vancouver because the move would threaten the jobs of Air Canada employees in British Columbia. "The directors at Air Canada need to pay close attention and don't buy everything that the CEO is telling them," Mr. Strachan said.

Robert Kokonis, president of airline consulting firm AirTrav Inc., said Transat has secured a temporary freeze on wages from its 1,800 flight attendants and 430 pilots, but boosting revenue is crucial, too. "Transat must diversify its revenue base by looking for non-traditional markets such as the Asia-Pacific," Mr. Kokonis said. "A Vancouver base for Asia-Pacific operations would provide much more operational flexibility for Transat."

Transat's $13.2-million loss in the second quarter compared with an $8.7-million profit in the same period last year. The company, which also sells holiday packages to destinations in Mexico and the Caribbean, lost 35 cents a share in the February-to-April period, compared with a 23-cent profit a year earlier.

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"Competition remains fierce. These are tough times, no question," Mr. Eustache said.

Transat lost $42.7-million in its first half, making it extremely difficult to stage a turnaround for a profit for the full fiscal year, he added.

National Bank Financial Inc. analyst Cameron Doerksen said Transat will chop its seat capacity on transatlantic and sun destinations next winter amid intense competition from rivals such as Sunwing Travel Group.

With Transat delivering disappointing financial results, he reduced his 52-week target price for Canada's largest tour operator from $7 to $4.25.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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