Transat turns to federal emergency funding after reporting $79M loss tied to fuel costs

Transat A.T. on Thursday (June 11) reported a second-quarter loss of $79 million, largely driven by a sharp increase in jet fuel costs.

To help offset the financial impact, the airline plans to seek up to $150 million from the federal government's emergency loan program announced earlier this week.

The Montreal-based carrier saw its loss widen significantly from $23 million in the same period last year, while revenue remained unchanged at approximately $1 billion.

In a statement, Transat’s CEO Annick Guérard called the quarter “disappointing,” and blamed “factors largely beyond our control,” including the suspension of flights to Cuba amid a fuel shortage.

“The suspension of flights to Cuba and the material increase in aviation fuel prices, an industry-wide crisis, resulted in an estimated negative impact of $95 million on adjusted EBITDA, of which approximately $70 million is attributable to higher fuel costs in March and April,” Guérard said.

READ MORE: Transat suspends Cuba operations indefinitely

The impact of rising aviation fuel prices persisted through May, resulting in additional costs compared to the same period last year, she continued.

Fuel prices surged following the escalation of conflict between the United States and Iran, disrupting global energy supplies and driving aviation fuel costs sharply higher.

Although prices have moderated somewhat in recent weeks, the increase placed significant pressure on airline operating expenses.

Transat has responded by reducing less profitable routes and introducing additional fees.

However, intense competition and fluctuating airfare demand have limited the company's ability to pass higher fuel costs on to passengers through ticket price increases.

Engine recall & labour costs

Transat's second-quarter profitability was further pressured by the ongoing Pratt & Whitney engine recall, which has left a portion of the Air Transat fleet out of service, as well as rising labour costs following a new pilot contract. Approved in January, the agreement includes wage increases of roughly 50 per cent over five years.

Although jet fuel prices have eased from their peak levels during the conflict, they remain significantly elevated.

READ MORE: Air Transat enhances flexibility conditions, says it has enough fuel for summer

U.S. Gulf Coast jet fuel recently traded at US$3.57 per gallon, down from US$4.34 earlier in the crisis but still well above the pre-conflict price of about US$2 per gallon.

Guérard said access to the federal government's new Liquidity for Airline Sector Resilience (LASR) program would provide important financial support as the company continues to manage a challenging operating environment while remaining focused on customers and stakeholders.

“This initiative reflects the essential role aviation plays in the Canadian economy,” she said. “Transat intends to apply to the LASR facility, which would provide meaningful support as we continue to navigate the current environment with discipline while maintaining our focus on customers and stakeholders.”

READ MORE: Ottawa offers millions in airline loans amid fuel crisis, carriers divided

Fuel expenses reached nearly $200 million during the quarter, representing a 46 per cent increase compared with the same period last year.

To reduce exposure to fuel-price volatility, Transat has hedged approximately half of its summer fuel requirements.

The airline previously relied on more than $1 billion in federal assistance during the COVID-19 pandemic, when global travel restrictions severely disrupted the aviation industry.

Last year, Transat restructured its remaining $762 million in government-backed debt, an agreement that granted Ottawa the option to acquire a 20 per cent equity stake in the company.

According to its latest quarterly report, Transat still carries approximately $320 million in outstanding pandemic-related government loans, in addition to a $75 million credit facility.

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