On Thursday, Transat AT (TSX:TRZ) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://app.webinar.net/48qMG9qGyEe

Summary

Transat's second quarter results were significantly impacted by external factors, with a $95 million negative effect on adjusted EBITDA due to increased fuel costs and the suspension of operations to Cuba.

The company's revenue remained stable at $1.003 billion year over year, but adjusted EBITDA fell to negative $21 million from positive $98 million last year, largely due to a $70 million increase in fuel costs and a $25 million impact from the suspension of Cuba operations.

Transat plans to apply for the Canadian government's Liquidity for Airline Sector Resilience facility to support its financial stability amid high fuel costs.

Operational challenges include grounded aircraft due to GTF engine issues, with five aircraft grounded versus the three anticipated, affecting scheduling and revenues.

New strategic initiatives include expanding European routes to year-round service, introducing a new Montreal-Istanbul route, and strengthening partnerships, such as the joint venture with Porter Airlines.

The company anticipates a 4-5% increase in capacity for fiscal 2026 despite current challenges, although elevated fuel prices are expected to continue impacting results.

Management indicated that while demand remains strong for European routes, the South market faces challenges, and fuel surcharges have not been fully absorbed by customers, affecting pricing power.

Full Transcript

OPERATOR

Bonjour, mesdames et messieurs. Bienvenue à la conférence Transat Good morning ladies and gentlemen. Welcome to the Transat conference call. Please note that this conference call is being recorded. I would now like to turn the meeting over to Andrea Gagny, Senior Director of Communications, Public affairs and Corporate Responsibility. Please go ahead. Ms. Gagny

Andrea Gagny (Senior Director of Communications, Public Affairs and Corporate Responsibility)

hello everyone and thank you for joining us. For our second quarter earnings call ended April 30, 2026, Annique Guerrard, President and CEO and Jean Francois Operineau, Chief Financial Officer, will provide you an overview of the quarter and comment on the current operational situation and commercial plan. Jean Francois will also discuss our financial results in detail. We will then take questions from financial analysts. Questions 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 today may include forward looking information regarding Transat's outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties.

Forward looking statements represent Transat expectations as of June 11, 2026 and are therefore subject to change after today. Our actual results may differ materially from any stated expectations. Please refer to our forward looking statement in Transat's second quarter news release available on transat.com and on Sedarplus. With that, I would like to turn the call over to Annik for opening remarks. Thank you.

Annik Guerrard

Andrea Good morning. Thank you for joining our conference call for the second quarter of fiscal 2026 following a solid first quarter that continued the positive momentum of fiscal 2025 and reflected the tangible benefits of our strategic initiatives. Second quarter results were significantly below our expectations as factors beyond our control severely impacted profitability, with prices remaining high due to prolonged closure of the Strait of Hormuz.

Fuel costs increased operating expenses by about $70 million in March and April and the impact persisted in May. Additionally, the sudden halt of our operations to Cuba further impacted results by about $25 million. Together, these two external factors resulted in a negative impact of about $95 million on adjusted EBITDA. During this period of intense volatility, we've implemented specific measures to mitigate adverse effects such as fuel surcharges on new bookings and targeted adjustments to network capacity, which was reduced by 6% from May to October 2026.

Fuel surcharges had a marginal impact on our second quarter results since Most reservations for this period had been booked prior to the start of the conflict in the Middle East. We anticipate surcharges will gradually mitigate the effect of higher fuel cost with full offset only expected toward the end of the year. We welcome the introduction by the Government of Canada of the Liquidity for Airline Sector Resilience facility which recognize the significant fuel cost pressures currently facing Canadian Airlines.

Transat intends to apply to the facility which will provide meaningful support as we navigate the current environment with a continued focus on disciplined cost management, operational execution and delivering for our customers. In the context of an industry wide fuel crisis that caused operational disruptions and network adjustments, we experienced downward pressure on key metrics in the second quarter. Our yield declined 0.7 percentage points after five consecutive quarters of growth.

Load factor was 83.8% compared to 84.6% in the second quarter of 2025. Capacity expressed in available seed miles grew by 4.8% while capacity for such routes, our main program during this period, rose by 1.7% despite the suspension of Cuba. It should be recalled that following the initial cancellation of flights to Cuba in mid February, the short notice only allowed for a partial redeployment of that capacity to other destinations. Finally, traffic expressed in revenue passenger miles rose 3.9% in the second quarter reflecting strong demand.

Out of a fleet of 42 aircraft at the end of the second quarter, five were grounded due to GTF engine issues compared to three initially anticipated. This ongoing problem continues to drive operating inefficiencies, increased scheduling variability and negatively impact revenues. Since the beginning of this supply chain crisis, Pratt and Whitney has not been able to provide us with clear visibility on a detailed resolution plan. The situation remains highly volatile for Transat.

We still expect three aircraft to be grounded this summer and full resolution is not expected before early 2028. Moving to our Network Several new routes were recently unveiled as part of the next winter program alongside the extension of European routes to year round service. These include new connections to south destination and Europe as well as the annualization of key transatlantic routes such as Toronto, Paris and Montreal Barcelona. This reflects continued progress on network diversification and a focus on reducing seasonality through a more balanced year round offering.

We also announced recently the introduction of a year round nonstop service between Montreal and Istanbul starting in October. This addition builds on the existing Toronto Istanbul route whose strong performance has confirmed solid demand for travel to Turkey and beyond through the collaboration with Turkish Airlines. Partnerships remain a key pillar and cornerstone of our network strategy not only with Turkish Airline and several Interline agreement with Iberia as the newest addition, but also through our joint venture with Porter Airlines that has been further strengthened with the launch of Transat sub packages on Porter operated flights with Transat acting as a tour operator. This initiative adds new destination for Transat customers such as NASA and Grand Cayman and expands options to Mexico with flights operated by either Porter or Transat offering greater flexibility and convenience as we look ahead to the summer season, load factors to date are 0.6 percentage points lower compared to the same period last year, while unit revenues expressed as yield are 0.6% higher than they were at this time last year.

As for capacity, reflecting our latest adjustment, we expect a 4 to 5% increase measure in available seat miles for all of fiscal 2026 compared to last year. In conclusion, the quarter, and likely the defining chapter of our year, was shaped by two abrupt external shocks rather than underlying execution issues. First, the sudden halt of our Cuba operations led to an immediate and significant revenue loss while leaving us with fixed operating costs that could not be redeployed in the short term.

Second, the industry faced a sharp and rapid increase in fuel prices while we implemented mitigating measures. Market condition and demand elasticity constrain our ability to fully pass these costs on to customers without materially affecting demand and overall revenue performance. Both these factors were exceptional, exogenous and unfolded within a very short time frame, limiting our capacity to adjust our operation and cost structure dynamically.

Our Q2 results do not reflect in any way the progress accomplished by our teams in executing our plan. We remain fully committed, navigating today's industry challenges with determination and resilience. We will continue to proactively adjust our strategies in a timely and diligent manner for the remainder of the fiscal year. This concludes my remarks for today. Jean Francois will now review our financial results.

Jean Francois Operineau (Chief Financial Officer)

Thank you, Anit. Good morning everyone. Our second quarter results were affected by several factors, the most important of which were outside our control. First, the sharp increase in fuel prices had an adverse impact on profitability as only a marginal portion of the increase was recovered through surcharges on new bookings during the period. Second, the suspension of flights to Cuba reduced revenue as capacity redeployment efforts only partially mitigated the effect and resulted in additional costs.

Looking more closely at the results, revenues were relatively stable year over year at $1,003,000,000. The suspension of flights to Cuba caused a revenue shortfall of $81 million compared to last year. In addition, compensation revenue from Pratt and Whitney related to Grounded aircraft was $5 million in the second quarter of fiscal 2026 versus $20 million last year as the prior year amount reflected an extended period from October to April following the agreement signed in April, while the current year reflects only the quarter.

The revenue decline was partially offset by a 3.9% traffic increase, while yields were marginally lower. Adjusted EBITDA was negative $21 million compared to positive at $98 million last year. The shortfall of nearly $120 million can be broken down as follows. Approximately 70 million in additional fuel costs incurred in March and April driven by the rapid increase in fuel prices following the start of the conflict that shut down the Strait of Hormuze.

As mentioned, surcharges had a marginal impact since most bookings for the second quarter had been made prior to the onset of the conflict. The situation in Cuba affected operating income by approximately $25 million, reflecting both lost revenue from last minute flight cancellations and higher costs associated with partial capacity redeployment and customer repatriation efforts. I already pointed out the $15 million year over year reduction in compensation from Pratt and Whitney, but the volatile engine situation also resulted in unplanned cost and inefficiencies.

We also incurred higher year over year salary and benefit expenses, primarily reflecting the new collective agreement with our pilots, including temporary inefficiencies related to its implementation such as more overtime. Finally, we had an increase in general expenses, including approximately $5 million directly related to the proxy fight leading up to our last annual general meeting. These factors were partially offset by capacity increase. As a result, the net loss was $79 million in Q2 2026 compared to a net loss of $23 million in the same period last year.

Adjusted net loss was $105 million versus adjusted net income of $5 million reported last year. Moving to our financial position, cash flow generated by operating activities were $118 million in Q2 2026 compared to $208 million last year. The variation reflects lower profitability, while the net change in non cash working capital balances was in line with last year. As for investing activities, CapEx was $19 million in the quarter compared to $15 million a year ago.

Turning to our balance sheet, cash and cash equivalents totaled $390 million as of April 30, 2026, relatively stable from 387 million at the end of Q1. Cash and cash equivalents in trusts or otherwise reserved, mainly resulting from travel package bookings, amounted to $194 million at the end of Q2 2026, down from 528 million at the end of Q1 to reflecting the seasonal nature of our operations, long term debt and deferred government grants stood at 320 million as of April 30, 2026, down from $375 million three months ago and down from $812 million 12 months ago prior to our debt refinancing last summer.

The $55 million quarter over quarter decrease reflects the repayment of $25 million on our revolving term credit facility and $30 million our subordinated working capital facility during the second quarter. As a result, Transit had a net cash and cash equivalent position of 70 million at the end of Q2 2026, up from a net cash position of $12 million three months ago and up from a net debt position of $280 million a year ago. To summarize, the second quarter results were affected by a perfect storm mostly comprised of external factors which affected profitability by $119 million, essentially fuel 70 million, Cuba 25 million and Pratt and Whitney $15 million. As Enik mentioned, TRANSAT intends to apply to the laser facility administered by the Canada Enterprise Emergency Funding Corporation, which would provide additional financial flexibility as we remain focused on executing our strategic priorities. The facility would provide access to up to $150 million in funding with exact amounts determined as a function of the year over year increase in fuel prices resulting from the closure of the Strait of Hormuz.

The facility will strengthen our liquidity position and provide additional financial flexibility. Looking ahead to the second half of the year, elevated fuel prices will continue to weigh on our operating results. That said, surcharges and other actions are expected to help partially offset the impact. While draws on the laser facility will provide additional support on the broader cost front, we are taking decisive action to recalibrate our operating cost structure in line with deploy capacity and to rapidly mitigate the short term impact arising from the rollout of new operational rules under our new Pilot Agreement.

Finally, we will continue to benefit from lower interest charges while efficiencies and gains from Elevation program are expected to further ramp up. In summary, we will maintain a strict discipline on elements we can control. This concludes my comments. We will now open the call for

Alice

questions thank you ladies and gentlemen. If you do have any questions, please press STAR followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised and should you wish to decline from the polling process please press STAR followed by two and if you're Using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press Star one now. If you have any questions first, we will hear from Karnad Gupta at Scotiabank.

Please go ahead.

Karnad Gupta

Thanks. Good morning. Maybe the first question on the fuel in the second quarter, I guess a $70 million increase in costs you kind of pointed out early on. So it was expected. But what was any benefit of fuel hedging in the quarter if you had? And do you expect some of the hedges to roll into Q3 as well?

Jean Francois Operineau (Chief Financial Officer)

Yeah. So essentially our hedging strategy. I'm sorry, we were on mute, I believe. So essentially our hedging strategies with respect to fuel are using options rather than using forwards. So essentially we're not locking in price, but rather using strategies that provide a discount mechanism over market prices. And that will be the case for the second half of the year as well.

Karnad Gupta

Okay, so there's some benefits of that potentially in the second half as well. Correct. There was some in the, in the, in the second quarter as well. Okay, thanks for that. And then in terms of the fuel availability itself, that's been a challenge in Europe to some degree. How are you guys procuring fuel? I mean, do you have any agreements in place or do you have any visibility on the supply side?

Jean Francois Operineau (Chief Financial Officer)

Yeah, we are obviously closely monitoring the situation. In collaboration with our suppliers, we have secured the fuel supply that is required to operate our full summer program, in fact. So our operations are running as planned and we expect that they will continue to run as planned for the rest of the summer.

Karnad Gupta

Okay, great. And last one for me before I turn over. On the yield side for the summer, you guys are looking at, at this point, obviously, you know, 60 basis point improvement in yield vers last year at the current time span. And I was just wondering, with the fuel surcharges and fares and ancillary fees, et cetera, with all that going up, some of the North American airlines are looking at very decent double digit numbers in yield increases. What's the Delta? What's the gap between you guys and your peers?

Jean Francois Operineau (Chief Financial Officer)

When we're looking at the yield so far for summer, our yields are up 0.6% in percentage. The Atlantic market is up 1.7%, but South is down about 6%. When we compare in terms of average fare for summer, the average fare is up 4.5% compared to last year. So as explained initially, we see that the overall fuel surcharge that we put in the market did not stick. It stick at the beginning, but not Recently. So the initial surcharge were well absorbed, with demand remaining resilient through the early rounds of increases.

But more recent increases resulted in a slowdown in the booking momentum. The situation, however, remains very volatile at the moment. We need to stimulate demand with fair adjustments on targeted routes. And we have communicated over the past week that surcharger expected to progressively offset, you know, higher fuel cost towards year end, but it will still be limited for summer season. As we are looking into a pattern right now. Demand remains robust and customer remains price sensitive.

And therefore price aggressiveness is necessary at this point for keeping bookings and overall revenue targets for summer. It's difficult to compare with our competitors because, as you know, we don't have. We have less of a premium class. We're more leisure focused. So when we compare ourselves to more legacy carriers on the Atlantic market, for instance, the benefit from customers that are less price sensitive, unfortunately, this is something that we have, but to a less extent compared to our competitors.

And there is still a lot of capacity in the market. So that's putting pressure on the yield as well. But on specific routes where we see potential of increasing our yield, we are doing everything we can, you know, to push it forward. Now there's still capacity to be sold for the rest of summer. And we are confident that. Well, first, I would say with consumers, we are more confident that there's going to be. There won't be any fuel shortage during summer.

I think that's going to bring the men up. In that sense. We believe that we would be able to yield a little more to what we've been experiencing over the last weeks.

Benoit Poirier

That's fair enough. Thanks for that. Appreciate the time. Next question will be from Benoit Poirier at Desjardins. Please go ahead. Good morning everyone. Just with respect to the overall year yield increase for this summer. So 60 basis point, what portion of the fuel increase is currently covered by the yield or what kind of yield should we see to offset the full impact of the fuel right now?

Jean Francois Operineau (Chief Financial Officer)

Well, like Enix said, up until mid May, surcharge on new bookings were essentially completely offsetting additional costs related to fuel. But since then, our ability to offset additional costs without impacting demand started to erode. So recently, you know, when we compare our yields, our marginal yields to last year, we don't see a lot of offset of additional costs related to fuel prices. Okay, that's great. Yeah. Abenoua, just if we look at the average fare for summer, as we look at our numbers today, it is up 4.5%.

Compared to last year, if your surcharge had sticked, I would say we would be more around 15%. So there is some surcharge that are being absorbed, but not fully at this point.

Benoit Poirier

Okay, okay. And any big discrepancy between south and your global network and terms of ability to pass those fuel surcharge. So it looks like that the global networks, there's a little bit more competition as opposed to the South.

Jean Francois Operineau (Chief Financial Officer)

It's Europe in terms of demand remains strong, robust. So we have ability on the European market. The south market demand remains very challenging. Not only with the suspension of Cuba, but other external factor as well as security issues in Mexico and Jamaica, which has not completed recover fully from the hurricane. So this is, you know, all creating less favorable backdrops so it's easier for us to absorb for our customer to absorb. This surcharge on Europe south remains difficult at this point.

Benoit Poirier

Okay. And Jean Francois, you made great comments about the laser facility with the federal program and the up to 150 million that you could pull. What is the timing on that? When would you be expect to fall on the amount?

Jean Francois Operineau (Chief Financial Officer)

Yeah. So essentially drawdowns will be reflecting the increase in fuel prices. From May to October it will be monthly drawings. So the first draw. Monthly drawdown. Sorry. So the first draw will essentially be retroactive to May 1st. And then on a monthly basis we will draw on the facility up until we reach $150 million.

Benoit Poirier

Okay. Okay. And last question for me. Could you talk about the ramp up of your Fidelity program that you put in place and how are you tracking versus expectation?

Jean Francois Operineau (Chief Financial Officer)

Okay, so you're talking about asking about the timeline for the loyalty program. Well, I know it's still far ahead, there's still work to be done. But just so far how it's shaping up versus the schedule, it's going very well. We are in a beta phase during summer and a full commercial launch is targeted towards the end of 2026. So we are working closely with Desjardins, as you know, to launch a program that will be highly innovative. And the partnership with Desjardins and Visa that we unveiled in January for co branded credit cards really creates, you know, we've received feedback, really creates a compelling value proposition for our customers and potential new customers as well. So we are on track to deliver this by the end of 2026.

Benoit Poirier

That's great. Thank you for the time.

Tim James

Next question will be from Tim James at TD Cowan. Please go ahead. Thank you very much for the time. Good morning. My first question just I guess a bit of A clarification maybe you mentioned average fares up 4.5% year over year. I believe that was for the summer. I'm wondering if you could give kind of a comparable number for Q2 and forgive me if you did and I missed it. So what the Q2 number was and then when you make reference to that, does that include the fuel surcharge or is the fuel surcharge on top of those growth rates?

Jean Francois Operineau (Chief Financial Officer)

Yes, it does include the fuel surcharge. When we look at Q2 we had revenues that were similar to last year with capacity that was up 4.8% but yields were down 0.7% year over year. And of course when we. And as you know in Q2 the most of the capacity had already been sold when we introduced the fuel surcharge. In addition to that there were several factors weighted on sub performance with the Cuba suspension, Mexico and we had more AOGs due to Pratt and Whitney engine. So we couldn't get to the yields and pricing that we were anticipating, unfortunately.

Tim James

Okay, my next question. In the press release there's a reference to recent market volatility has weakened pricing power. I'm just trying to understand that comment. I'm just wondering if you could maybe expand on that a little bit how the actual volatility sort of impacts your ability to pass through higher, higher fares.

Jean Francois Operineau (Chief Financial Officer)

Well, when we look at demand there was some passenger have started worrying about fuel surcharge. So that was one thing. Then there was a lot of media coverage around the increase, significant increase in pricing during summer season. And so we saw at one point that we were not able to sustain our fuel surcharges and because the demand went down. So there was some markets that could sustain it, other markets that could not sustain it. So we had to introduce a couple of measures including decreasing price on certain segments and increasing as well as some flexibility measures for customers.

Removing fees for instance for modification or cancellation depending on the family fares. So we had to do a couple of actions on top of decreasing price to stimulate demand. Okay, that's very helpful. Thank you very much.

OPERATOR

Once again ladies and gentlemen, a reminder to please press Star one should you have any questions. Thank you. Next is Alexander Ogimiri at cibc. Please go ahead.

Alexander Ogimiri

Hi, good morning. Thanks for taking my question. So I have a two part question on elevation. First off, congrats on completing the program and hitting that $100 million target. I was hoping can you help us understand how much of that 100 million annualized run rate was flowing through those Q2 results? And given you completed the program during the quarter. Should we expect maybe an increased contribution in the third quarter?

Jean Francois Operineau (Chief Financial Officer)

Yeah, in terms of Q2 on an LTM basis, we have captured everything that we wanted. And in terms of the future, looking forward to there will be further initiatives that will continue to provide additional benefits, but it should be marginal.

Alexander Ogimiri

Okay, thanks. And yeah, I had a question on the pilot salaries. I saw them up 15% year over year. Can you help us understand the phasing of that? Do we think of that as the run rate going forward? Or maybe there was some one time costs in that.

Jean Francois Operineau (Chief Financial Officer)

Can you repeat, Alex, please? I just missed the beginning of the question. Oh yeah, that new pilot agreement was reached. I was wondering, is that the full run rate that we should expect in Q2 that year over year increase? Or maybe there was some one time costs in that? No, there were some inefficiencies related to the transition between the old agreement and the new agreement, which resulted in a lot of overtime. So obviously as we progress into the year, we should see that those inefficiencies going down. So I wouldn't say that Q2 is the run rate year over year increase. And on top of that, don't forget that last year we were under the older agreement regime, but starting in Q3 we'll be under the new agreement regime.

So on a year over year basis, the year over year increase should be lower going forward. Okay, yes, that makes sense. Thanks for taking my questions. Thank you. Thank you, Alex.

OPERATOR

And at this time, Ms. Garnier, we have no other questions registered. Please proceed.

Andrea Gagny (Senior Director of Communications, Public Affairs and Corporate Responsibility)

Thank you, Sylvie. Thank you everyone. As a reminder, our 2026 third quarter results will be released in September. Thank you and have a good day.

OPERATOR

Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending and at this time we ask that you please disconnect your lines.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.