TRZBF (TRZBF) Q3 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the Transat Conference Call. Please note, this call is being recorded. I would now like to turn the meeting over to Andrean Gagne, Senior Director, Communications, Public Affairs and Corporate responsibility. Please go ahead, Ms. Gagne.

Thank you. Hello, everyone, and thank you for joining us for our third quarter earnings call ended 07/31/2026. Annick Guerard, President and CEO and Jean-Francois Pruneau, our Chief Financial Officer will provide an overview of the quarter and comment on the current operational situation and commercial plans. Jean-Francois will also discuss our financial results in detail. We will then take questions from financial end question from journalists, will be taken offline after the call. The conference call will be conducted in English. But questions may be asked in French or English. As usual, our supplementary disclosure has been updated and is available on our website in the Investors section. Jean-Francois may refer to it when he presents the results. Our comments and discussion to date may include forward looking information regarding Transat's outlook objectives, strategies that are based on assumptions, subject to risks and uncertainty. Forward looking statements represent Transat's expectations as of 09/10/2026. And therefore are subject to change after today. Our actual results may differ materially from any stated expectation. Please refer to our forward looking statement in Transat third quarter news release available on transat.com and on SEDAR plus With that, I would like to turn the call over to Annick for opening remarks.

Good morning, and thank you for joining us Our third quarter results were significantly impacted by persistently high fuel prices which outweighed the progress achieved across the business and placed considerable pressure on profitability. At the same time, demand for our product remain resilient. Revenue and traffic grew and our transatlantic network continued to perform well despite a highly competitive environment. While fuel prices remain outside of our control, our response is not. We are actively managing capacity, cost, liquidity, and network deployment to mitigate the impact and position the business for recovery. On July 27, we closed financing of up to $150 million under the Government of Canada's liquidity for airline sector resilience facility or laser program. This facility is now fully drawn and strengthens our liquidity position as we navigate a period of sustained fuel price volatility. The federal government has also made available an additional $250 million in funding providing further flexibility as fuel prices remain elevated well beyond initial expectations. Jean-Francois will cover the financial details shortly. Beyond the immediate fuel pressure, we remain firmly focused on strengthening Transat's long term earnings profile. Our objective is to broaden our sources of revenue deepen customer loyalty, expand our premium offering, and capture more value for each booking. Our new loyalty program remains on track for launch toward the end of 2026. The program is designed to strengthen customer retention increase engagement, and create additional revenue opportunities across our ecosystem. The beta launch is already underway with over 23 thousand members enrolled to date and member engagement outperforming our initial expectations. In parallel, we are advancing a comprehensive cabin reconfiguration program with the first modernized aircraft scheduled to enter service in the second half of 2027. The upgrade of our cabins will increase premium seating capacity support ancillary revenue growth, and enhance the overall customer experience. Together, these initiatives are designed to diversify our revenue base strengthen margins, and improve the structural earnings profile of the business over time. Turning to our operating metrics. Third quarter capacity increased by 6% year over year. Load factor was slightly below last year while yield declined by 1%. As bookings progress through the summer, the competitive environment intensify. This place pressure on yield and significantly limited our ability to recover higher fuel costs through fares. Nevertheless, transatlantic yield increased by 0.6%, in the context of 8% capacity growth While this performance did not offset the increase in fuel cost, It demonstrates the underlying resilience of our core transatlantic network Our SOFT program continued to be affected by the situation in Cuba, with a cumulative revenue impact of $116 million Turning to our operational and commercial update. Of our 41 aircraft at quarter end, 4 were grounded to the ongoing Pratt and Whitney GTF engine issues 1 more than anticipated when planning our summer program. These disruptions continue to impact our operation throughout the quarter. Despite these constraints, we continue to execute our network strategy with discipline. Our focus remains on selective growth in market where our brand fleet, and partnerships provide a clear competitive advantage and attractive long term potential. This summer, we launched new nonstop services from Montreal to Agadir, Reykjavik, and Dakar as well as from Toronto to Tarrana. The early performance of these routes have been very encouraging. As an example, we have already confirmed that our Montreal-Dakar service will operate year round beginning this winter supporting our objective of reducing seasonality while developing new traffic flows across the network. For the upcoming winter season, we are maintaining a conservative approach to capacity growth in light of persistently high fuel prices. Capacity deployment will remain highly disciplined with a focus on our strongest performing markets and the most attractive opportunities for value creation. Partnerships also remain central to our strategy. Including our growing portfolio of interline and co chair agreements, and our successful joint venture with Porter Airline. With that, I will turn the call over to Jean-Francois who will review our financial results.

Good morning, everyone. This was a challenging quarter. Driven mainly by persistently high fuel prices. Revenue and traffic grew, but the increase in fuel costs more than offset that growth and was the main factor behind our results. Revenues were up 3% in Q3 26, or $26 million to $793 million on higher capacity and traffic. Adjusted EBITDA was negative $1 million compared with positive $81 million in Q3 25. The decline was almost entirely attributable to higher fuel costs. Before the contribution under the laser facility, fuel costs increased $105 million year-over-year. The fuel price rose 56% to US$3.74 per gallon, I should say, from $2.40 last year. A $25 million contribution under the laser facility was recorded as a reduction of fuel expense. Reported fuel expense was therefore $238 million, up $79 million or 50% from $159 million in 2025. Beyond fuel, salaries increased mainly reflecting the new collective agreement with our pilots and additional hours required to address operation operational disruptions including aircraft availability constraints resulting from continuing engine issues. During the peak summer period, 4 aircraft remain grounded, due to the ongoing Pratt and Whitney GTF engine issues, 1 more than initially anticipated. Additional unscheduled maintenance events affecting engines on our A330 fleet created further operational pressure. Together, these events required aircraft substitutions schedule adjustments, and crew reassignments contributing to higher overtime and other related costs. We continue to manage the GTF related pressure through additional lease spare engines, and active fleet management. Additional costs and revenue management inefficiencies are expected to persist until the issue is fully resolved which is not anticipated before 2028. During the quarter, we recognized $7 million in compensation from Pratt and Whitney as revenue, broadly consistent with the prior year. However, this compensation once again did not fully offset the financial impact of the ongoing engine related disruptions. Net loss was $107 million compared with net income of $400 million last year. The prior year result included a 1-time $345 million gain on the extinguishment of long term debt related to our government debt refinancing and is therefore not comparable. Adjusted net loss was $89 million or $2.18 per share versus an adjusted net loss of $12 million or $0.28 per share last year. Free cash flow was negative $32 million in the quarter, compared with negative $122 million last year mainly reflecting lower operating profitability and an unfavorable comparison with the prior year quarter which benefited from $61 million in proceeds from engine sale and leaseback transaction. For the first 9 months, free cash flow was positive $4 million compared with $149 million last year. Cash used in operating activities was $221 million in the quarter compared with $105 million last year. Capital expenditures were $21 million compared with $30 million last year, And for the first 9 months, they were $53 million down from $68 million last year. Reflecting a tighter CapEx plan and the deferral of discretionary spending. Cash and cash equivalents were $243 million as at 07/31/2026, down from $390 million at the end of Q2 and up $165 million at the end of fiscal 25. Cash and cash equivalents and trusts are otherwise reserved mainly related to travel package bookings, were $208 million, up from $194 million at the end of Q2 down from $430 million at the end of fiscal 25 reflecting the seasonal nature of our business. Customer deposits for future travel were $847 million as of 07/31/2026, compared with $822 million a year earlier. Long term debt and deferred government grant were $448 million as of July 31, up from $320 million 3 months earlier. The increase mainly reflected the initial $125 million laser drawdown and a $30 million draw on our subordinated working capital facility. Long term debt and deferred government grant net of cash were $205 million compared with a net cash position of $70 million 3 months earlier. As Anik noted, on July 27, we closed our financing under the laser facility administered by the Canada Enterprise Emergency Funding Corporation. Facility provides up to $150 million which we have now drawn in full. It matures in July 2030 and bears interest at 3.91%. Since March, the cumulative additional fuel costs we have absorbed amounts to approximately $175 million Beyond the laser facility, the federal government has agreed to extend an additional $250 million loan under the existing lease agreement further supporting our liquidity as we work through this period. The this multidraw loan matures in 2035 and bears interest of 1.22% for the first 3 years, and 3% thereafter. We will stay disciplined on both capacity and expenses, supported by the additional liquidity from our recent financing Back to you, Anik, for closing remarks before the Q&A.

Thank you, Jean-Francois. In closing, high fuel prices placed significant pressure on our third quarter results but demand of our product remained resilient supporting continued revenue and traffic growth. Looking ahead, fourth quarter load factor is currently 0.6 percentage points ahead of the same time last year. While yield is broadly in line. Capacity increase is 2% year over year measured in available seat miles. We are maintaining a disciplined approach to capacity cost and liquidity while continuing to execute the strategic initiatives that will strengthen Transat's long term growth. Finally, I would like to sincerely the government of Canada for its support. The financing strengthens our liquidity position and provides additional flexibility as we navigate the current difficult environment. I also want to acknowledge the incredible work of our employees. In a period marked by significant challenges, and uncertainty they have continued to serve our customers with commitment and resilience. Thank you all. While near term conditions remain challenging, we are taking the actions necessary to strengthen Transat's earnings power enhance resilience, and position the company for the future. This concludes our remarks. And we are now ready for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, Your first question comes from Konark Gupta from Scotiabank. Please go ahead.

Thanks, and good morning. Wanted to dig into the yield performance in this third quarter and your outlook for the fourth quarter. If I look at the airlines across the continent, most have reported, you know, 10%-plus yield in their calendar second quarters. And they are talking about, you know, stronger yield in the third quarters for them. I understand you have, you know, some exposure to Cuba, which probably is higher than what these other airlines might have, but still, do you see any surprises or any incremental pockets of weakness in your network that explains the gap in your yield performance versus, the peers?

Yeah. Good question. So we compete in a segment where customers are highly price sensitive. And this summer's environment was particularly challenging, which industry capacity growth and except intense promotional activity across the Canadian market. In that context, our ability to fully pass higher fuel costs through fares was constrained. The reality is that we are facing is that our economy segment, which is, of course, predominant when we look at our performance in that segment, it is not materially different from that of our competitors or legacy carriers. The key difference lies above the economy cabin. Legacy carriers have premium corporate, and loyalty revenue streams that have more than compensated for higher fuel costs across their networks. Unfortunately, we do not have those same levers at scale today. This is exactly, you know, what our loyalty program and cabin transformation initiatives are designed to address.

Makes sense. Thanks for that, Anik. And then, Jean-Francois, perhaps on the balance sheet side, you guys have tapped in fully on the laser facility and also signed up the LEAF incremental LEAF loan facility. Can you help us understand you know, in light of the fuel price environment today, and, obviously, we are seeing a little bit more pressure, in the last few weeks or days. With the Iran situation. Do you think, these loans you have kept, here, would be enough to, you know, satisfy the liquidity needs you might have for the next several months, or you may have to, you know, relook at some other options.

Well, that is a difficult 1. You know, obviously, related to the fuel, you know, the fuel markets. On, you know, on which we have no control. But that being said, when we look at the forward the forward fuel price curve, you know, we are gonna be okay. You know, we feel that the amount of money that we are able to get from the federal government and the you know, funding that we are getting now. Will be sufficient. But you know, that situation obviously is dynamic, is volatile. And I do not know precisely fuel prices will be in a month, in 2 months, a year from now.

Yeah. Okay. So based on the current forward curve, you feel like it is it is it is you are at a comfortable position as Absolutely.

Based on the forward curve, we will we will definitely find. Yeah. Okay.

Perfect. that is it for me. Thank you, guys.

Yep.

Your next question comes from Cameron Doerksen from National Bank. Please go ahead.

Yes. Thanks. Good morning. Wanted to ask, I guess, about the capacity plans I mean, mentioned some of the initiatives you are taking to kind of improve the premium yields.

But that obviously is not something that is going to impact you significantly in the near term. So, you know, I guess most airlines, when they face you know, higher fuel prices in the past have significantly cut capacity.

Yeah. I am just wondering why add any capacity in Q4 just given where fuel prices are? I mean, it seems like the only way you are going to get yields up is to reduce some of the capacity.

Yeah. The increase in capacity in Q4 is very limited. it is below 2%. So we are, you know, we are keeping a conservative approach. And when we look at the upcoming winter, there will not be any capacity increase. So looking, you know, at the overall patterns that we are seeing, we feel comfortable with the capacity that has been deployed.

Okay. And maybe you can just expand a little bit, I guess, on the premium cabin, your upgrades that you are you are doing. I am just wondering when it is kind of all said and done, you know how much bigger of an increase in premium seating will you have on average on your aircraft versus what you have today? I am just trying to get a sense of how this could improve the yield profile as we look ahead a couple of years.

Yeah. So that is part of our strategic initiative. Unfortunately, we cannot disclose a number at this point. This is something that we are gonna be able to share later on as we deploy, the new cabin.

Okay. Yeah. Alright. I will, I will pass the line. Thanks very much.

Your next question comes from Tim James from TD Cowen. Please go ahead.

Thank you very much. Good morning. I just want to return to Cameron's question actually for a minute. Just thinking about the fourth quarter capacity and the 2% How do you approach that? Like do you have the ability to actually reduce that capacity? Or once you start selling because you have sold some of these seats that will be provided in the fourth quarter, months and months ago, Do you actually, sort of have the ability or can you cancel those flights, or do you take those actions?

I guess where I am going with this if you were to sort of decide on the ideal Q4 capacity today, would it still be a 2% growth or is part of that because you have already sold some of these seats and these flights months and months ago at a lower fuel price environment.

I just want to clarify.

In terms of seats, we are below 2% compared to last year. And the ASM or plus 2%, and this is strictly due to the removal of Cuba. So we are not doing any increase in the market. And to respond to your questions, as we move along, through a season, we always adjust capacity based on performance, to make sure that we protect, you know, the highest margin as possible. So the cleanup has been done for Q4. If you recall, at the beginning of spring, we reduced 6% capacity for the whole summer and then we made other adjustments throughout the summer. So you know, we have done based on the fleet that we have, we have done all the actions that were required to maintain a conservative capacity.

Okay. that is helpful. Then just thinking about the yield and the year over year yield comparisons, obviously, you are trip length and your route mix can influence yield. Can you just maybe give us a sense for an apples to apples basis across the network what are actual fares for you in Q4 at this point and maybe Q3 as well? How have fares changed year over year on a route comparable basis?

Yes. So fares, when we look at the fares for Q4, we are looking at an increase of 6%. When we look at Q3, we had, you know, 4.8%. But you need to understand that the mix the network changed in an important fashion and the removal of Cuba. So when we look at yield, of course, it is much more laid out on longer distance since Cuba represents shorter distances. So, you know, we are we are okay with the increase in TMC However, when you look at the unit revenues, it does not cover for the loss of Cuba. That was a highly performing market especially in summer, but as well at the end of last winter. Okay. that is helpful. Yeah. We are looking at next winter. Of course, Cuba will not be there anymore. So you have adjusted to make sure that the capacity for self definition is well balanced. So, of course, Dominican Republic will play a big role. Performance so far is, very high. And trying, you know, to redistribute this capacity to maximize performance for next winter. Okay. that is helpful. Thank you.

Just I guess my last question. I am just wondering if you can expand a little bit on the increased competition that was called out in the Q2 report as well. Sounds like it is continued, if not even increased a little bit more over the course of this summer. Just wondering if you can talk about what form that is taking. Is that competitors kind of putting more capacity on than you think is warranted? Is that competitors being more aggressive with pricing or maybe not pushing pricing higher to offset fuel costs. Just wondering if you can talk about what form that increased competition is taking this summer.

Yeah. it is both, actually. There was big increase on the Atlantic market. And combined with the fact that when we introduced the fuel surcharges, demand went down. So the whole market, the Canadian market, competitors, everybody, started to, launch promotions. And it never ended. It was promotions 1 after the other. We have never seen such a highly competitive network. It was 1 after the other. The whole summer, and it continues. So this is what has affected the overall yield, especially in the economy segment, unfortunately. Which prevented ourselves from passing on the increase in fuel into the customers and it continues. Okay. Thank you very much, Anik. that is really helpful.

Your next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead.

Yes. Thanks, and good morning, everyone. Just related to yep. Just related to your the premium cabin upgrade. Could you talk a little bit about the, the incremental CapEx required on those? And what are the most attractive region regions to introduce, those new cabins at first glance.

Okay. So the I am gonna answer the second part first. So the most attractive markets for those are primary markets in Europe? That we do, year round, such as Paris, London, Portugal, And then you have a longer stage like, Athens, so Greece, and Rome. So these are the primary markets where we plan to deploy the highest level, I would say, of premium cabin. So that is it. And we have some aircraft as well that do not have what we call our clock class. So we want to standardize as well because we see big demand in club class So on some aircraft, we are gonna increase that class. On some, we are gonna introduce that class. So the goal is really to maximize revenues per client as much as possible. So it is gonna touch the whole suite.

Okay. that is great. Okay. CapEx?

In terms of CapEx, you know, you know, obviously, we are not in a position to provide any guidance for next year CapEx. But that being said, the introduction of the new cabin reconfiguration starting at second half of next year That kind of will have a minimal impact on CapEx. Year, you know, year over year. It will be-- the bulk of it will really be in 28.

Okay. that is great color. And for this upcoming winter, Annick, you talked about the potential capacity that is going to be flat Could you talk about the pricing you have seen lately? Will you talked about the promotions that, was quite, high in the last few months. What about the pricing environment? That you have seen lately for this upcoming winter.

Yes. So we are we are trying to see yields rebounding in a more in a more stable picture, I would say, especially on the South program heading into the fall and winter. So again, given the current economic volatility and the uncertainty, we are taking, a very highly disciplined and conservative approach to capacity and deployment. No growth for next winter, So far, we see strong demand for sun destinations. Load factor still early. Still early to comment, but load factor is similar to last year, and yields are up. Year over year. Okay.

So what would it not enough would it be enough to cover for the fuel increase that you currently see?

Not yet. Yeah. Okay. that is great color.

And obviously, you were successful to secure a $250 million term credit facility agreement at attractive rates. there is $170 million left. You talked about the visibility you have on the forward curve. Any other options at your disposal aside from the $170 million left that you might be looking at Nothing under the analysis as we speak.

And we feel very confident with the forward curve today. But, you know, we might have maybe to find other solutions if, you know, fuel prices do not improve. But you know, like I said, very difficult to predict. But we feel very confident today. With the market environment that we are seeing in front of us.

Okay. And any changes in terms of the edging policy or things that you are looking at from a fuel standpoint?

No. You know, it is it obviously benefited in, in 3. So, you know, our fuel expense will have would have risen more than what we have seen essentially without hedging. So Has it has been beneficial in Q3. And our program is ongoing. So we are hedged, you know, we are hedged about to 65%, I would say, on the fuel on the fuel side for Q3. You know, a bit less for the first half of 27.

that is great. Okay. Thanks for the color.

Ladies and gentlemen, Your next question comes from Alice Liu from CIBC. Please go ahead.

Hi, thanks for taking my question. Maybe just 1 for me. You spoke about the launch of your new loyalty program, and that is tracking ahead of expectations. Can you give us any additional color on what sort of contribution you might expect from the loyalty program as we look out into 2027 and the longer term or if anything has changed given the launch seems to be going better than anticipated?

Thank you. Yeah. Well, For 2027, the contribution will be minimal, as we are launching we will be fully launched, you know, by the end of 26. So, you know, in the in the first years, obviously, we are more on the earned side than the than the burn side. So, you know, total we expect, in fact, that this product or this new offering will mature over a period of 3 years, and that is where we are gonna start to see a material contribution.

Okay. Great. And then anything we should be aware of in terms of any additional investments that are needed for the loyalty program? I will jump back in the queue.

In terms of investment, you said? Almost nothing. it is all behind us, and it is been minimal. it is really our IT systems. Perfect. essentially IT systems. Perfect.

Thank you.

And there are no further questions at this time. I will turn the call back over to Andrean Garnier for closing remarks. Thank you, Julie. Thank you, everyone. As a reminder, our 26 fourth quarter results will be released in December. Thank you, and have a good day. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.