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Despite new competition, Transat stock flies high

Jean-Marc Eustache, president and CEO of Transat A.T. Inc.

Paul Chiasson/THE CANADIAN PRESS

Shares of Transat A.T. Inc. jumped more than 13 per cent in price Thursday on expectations the airline and travel company will post improved results, despite the threat of heightened competition.

While the Canadian industry ramps up the number of seats it needs to sell, particularly with the introduction of Air Canada's new discount carrier Rouge on international routes, Montreal-based Transat has been trimming its schedule and flights to cut costs.

"This past winter in 2013, we brought capacity back to the level of 2011, and the results have been much better," said Denis Petrin, the company's chief financial officer.

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This move to streamline its operations in the winter throughout its network led Transat to record lower revenue in its second-quarter results, announced Thursday.

However, it brightened analysts' outlook for the company, even with concerns about competition from Rouge.

"While Transat faces some longer-term competitive challenges, we believe the recent financial results highlight Transat's progress on cost reductions and capacity discipline as it looks to realize $75-million in cost savings by 2015," said National Bank Financial analyst Cameron Doerksen in a report.

Transat announced that second quarter revenue was $1.1-billion, versus $1.2-billion in the same period last year.

This was caused, Transat said, by a 13.7-per-cent drop in the number of travellers, after the company reduced its travel offerings to French, transatlantic and warmer destinations.

For the quarter, Transat posted a loss of $22.8-million, or 59 cents a share, compared with $13.2-million, or 35 cents a share in the second quarter of 2012.

However, the operating loss before amortization, depreciation and restructuring charges was $1.2-million, compared with $26.2-million a year ago.

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"We reached our cost-reduction targets. And despite a challenging winter, selling prices were higher than last year, hence the improvement in our [operating] results.

"The summer is looking fairly good, and we expect to be back to profitability this year," said Jean-Marc Eustache, Transat's president and chief executive officer.

Transatlantic flights and vacations are around two-thirds sold for the all-important months of May to October, while prices are 5-per-cent higher compared to those months last year, the company reported.

Transat added that it is expecting better results than last year in the second half of 2013.

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About the Author

Guy Dixon is a feature writer for The Globe and Mail. More

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