CEO Bemoans cutting capacity. Tour operator misjudged appetite for travel last winter, but summer was hot.
Last year was truly the best of times and the worst of times for Canada's largest package tour operator, Transat A.T. Inc.
"We had the worst winter ever, followed by the best summer ever," said Transat chief financial officer Denis Petrin after the Montreal company announced better-than-expected fourth-quarter results.
In a rare frank admission by a company's top executive, the plain-spoken president Jean-Marc Eustache said in a teleconference call that the winter debacle "was a problem largely of our own making."
In anticipation of a slow recessionary winter, Transat took out 10 per cent of its own seat capacity -only to see rivals like Sunwings, WestJet Airlines Ltd. and Air Canada eat its lunch by filling a slew of additional seats to sun destinations.
"It was the first time in my life in this industry that I tried to be rational," said Eustache, a co-founder of the company that went public in 1987.
"Never, never again until I die will I again cut capacity."
In fact, the wholesaler is adding 13-per-cent capacity for the coming winter, two-thirds of that on airline seat-only tickets. "We don't think we are an airline," Eustache said. "For us, the airline is a tool" to direct passengers to hotels, some of which Transat co-owns, as well as to coach tours, car rentals and cruises.
But the emphasis on airline-seats-only tickets appears to be a riposte to the recent incursion of "skeds" -Eustache's name for scheduled-flight operators Air Canada and WestJet -into the package tour segment.
Fourth-quarter revenues jumped to $778.6-million from $719.7-million, and net income also spiked to $52.4 million from $18.1 million. Earnings for the year totalled $65.6 million, up from $61.8 million in 2009. Revenues for both years were $3.5 billion.
Investors rewarded the firm by boosting shares $1.71 on the day to $19.46, a nine-per-cent hike.
This year's prospects are good, said Eustache, although he cautioned that it's too early to make a solid forecast.
Cameron Doerksen, an analyst with National Bank Financial, said that adding capacity is a fair bet since prices have remained steady.
"It appears the demand is meeting capacity," Doerksen said.
"And there's reason to believe that the summer should be decent."
The main thorn in Transat's side at the moment is communist Cuba, whose hotel operators have refused so far to lower their prices, unlike Mexico, the Dominican Republic and Jamaica in particular, Eustache said.
"Cuba is not sharing in the pain enough," he said. "But they'll have to do something because fewer people will go there. We're dying in that market, so they'll have to (drop prices). They'll have no choice."
Transat negotiates prices directly with hotel owners - mostly Spanish chains in the case of Cuba -but analysts like Laurentian Bank of Canada's Ben Vendittelli said the Cuban government retains significant control over those prices.
Eustache said Cuba used to account for 33 or 34 per cent of Transat's winter capacity, but that has fallen off to 26 or 27 per cent. In terms of revenues, the island favoured by many Quebecers accounts for substantially less than 27 per cent, Petrin said.
As for Transat pumping up its flights-only segment, Vendittelli said that "they might have realized that was a market they were neglecting."
"We had the worst winter ever, followed by the best summer ever," said Transat chief financial officer Denis Petrin after the Montreal company announced better-than-expected fourth-quarter results.
In a rare frank admission by a company's top executive, the plain-spoken president Jean-Marc Eustache said in a teleconference call that the winter debacle "was a problem largely of our own making."
In anticipation of a slow recessionary winter, Transat took out 10 per cent of its own seat capacity -only to see rivals like Sunwings, WestJet Airlines Ltd. and Air Canada eat its lunch by filling a slew of additional seats to sun destinations.
"It was the first time in my life in this industry that I tried to be rational," said Eustache, a co-founder of the company that went public in 1987.
"Never, never again until I die will I again cut capacity."
In fact, the wholesaler is adding 13-per-cent capacity for the coming winter, two-thirds of that on airline seat-only tickets. "We don't think we are an airline," Eustache said. "For us, the airline is a tool" to direct passengers to hotels, some of which Transat co-owns, as well as to coach tours, car rentals and cruises.
But the emphasis on airline-seats-only tickets appears to be a riposte to the recent incursion of "skeds" -Eustache's name for scheduled-flight operators Air Canada and WestJet -into the package tour segment.
Fourth-quarter revenues jumped to $778.6-million from $719.7-million, and net income also spiked to $52.4 million from $18.1 million. Earnings for the year totalled $65.6 million, up from $61.8 million in 2009. Revenues for both years were $3.5 billion.
Investors rewarded the firm by boosting shares $1.71 on the day to $19.46, a nine-per-cent hike.
This year's prospects are good, said Eustache, although he cautioned that it's too early to make a solid forecast.
Cameron Doerksen, an analyst with National Bank Financial, said that adding capacity is a fair bet since prices have remained steady.
"It appears the demand is meeting capacity," Doerksen said.
"And there's reason to believe that the summer should be decent."
The main thorn in Transat's side at the moment is communist Cuba, whose hotel operators have refused so far to lower their prices, unlike Mexico, the Dominican Republic and Jamaica in particular, Eustache said.
"Cuba is not sharing in the pain enough," he said. "But they'll have to do something because fewer people will go there. We're dying in that market, so they'll have to (drop prices). They'll have no choice."
Transat negotiates prices directly with hotel owners - mostly Spanish chains in the case of Cuba -but analysts like Laurentian Bank of Canada's Ben Vendittelli said the Cuban government retains significant control over those prices.
Eustache said Cuba used to account for 33 or 34 per cent of Transat's winter capacity, but that has fallen off to 26 or 27 per cent. In terms of revenues, the island favoured by many Quebecers accounts for substantially less than 27 per cent, Petrin said.
As for Transat pumping up its flights-only segment, Vendittelli said that "they might have realized that was a market they were neglecting."
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