MONTREAL - Transat A.T. insisted Wednesday that an accounting error at its U.K. subsidiary and not an alleged fraud were the reason beyond its decision to restate the tour operator's financial results that increased its 2011 loss by $2.9 million more than previously reported.
The Montreal-based company said its loss for 2011 was adjusted to $14.7 million because of an accounting error between 2006 and 2010 at the subsidiary acquired in 2006.
Amounts received from customers for future travel weren't properly recorded according to accounting standards. Consequently, Transat has reduced its retained earnings by $11.7 million for the five years in question.
Published reports earlier this week from an anonymous group of Transat employees said the unit was a victim of a $26 million fraud over five years. Following an audit, one top finance executive in the U.K. was fired and another departure is imminent.
But chief financial officer Denis Petrin denied those claims, which prompted the company to push ahead the release of its results by one day due to the rumours circulating about the U.K. subsidiary.
"There is no fraud and the allegations in the article are without merit," he said on a conference call after Transat (TSX:TRZ.B) reported stronger fourth-quarter results.
The company, which includes Air Transat, ended a money-losing year by beating expectations in the fourth quarter as it generated a $16.6-million profit despite lower revenues.
While Transat's decision to reduce capacity this summer on transatlantic and sun destinations hurt its top line, the Montreal-based company said it earned 43 cents per share for the quarter ended Oct. 31.
Adjusting for one-time items including a $15-million (43 cents per share) impairment to goodwill in its France operations, it earned $28.6 million, or 75 cents per share, in the quarter.
That compared with net earnings of $7.3 million or 19 cents per share in the prior year when it took a $11.7 million restructuring charge.
Analysts had expected Transat would earn 42 cents per share in adjusted profits in the quarter.
Revenues decreased 5.3 per cent to $763.4 million from $805.9 million as its decision to reduce capacity caused a 6.3 per cent drop in the number of travellers. The move led to an improvement in prices and load factors in the important summer transatlantic market.
"We achieved very good results on the transatlantic market last summer and, in fact, it was one of our best-ever summers," stated president and CEO Jean-Marc Eustache.
"Our product, frequencies, destinations and marketing efforts helped us deliver the expected results."
For the full year, Transat lost $16.7 million or 44 cents per share, compared with a loss of $14.7 million or 39 cents per share in 2011. On an adjusted basis, its losses increased to $15.3 million from $9.7 million.
Revenues increased 1.6 per cent to $3.7 billion.
Margins at Transat's North American operations improved despite lower revenues but its European operations had a $3-million operating loss due in part to the expiry of its contract with Thomas Cook Airways and a weakening euro.
Transat's outlook for the key winter season remains uncertain because of the trend toward last-minute bookings to sun destinations. Its capacity is about 10 per cent lower than last year, but load factors and average prices are higher.
Medium-haul bookings in France are up 30 per cent from last year, while long-haul bookings are down eight per cent. Transatlantic capacity is 18 per cent lower than last winter.
The sun destinations market accounts for a substantial portion of Transat's business in the winter season.
"With regard to this market, we are early in the season and a significant number of seats remains to be sold, thus the trend toward last-minute bookings and margin volatility make forecasting difficult," the company said.
Ben Vendittelli of Laurentian Bank Securities said the fourth-quarter results were strong on the back of slightly better market conditions and good capacity management, as anticipated.
He said the strong results were "tainted by accounting errors and muted outlook, capping optimism."
"Although it is still early in the booking season, the outlook provided does not reassure us of much more than a slightly better winter season. Furthermore, management indicated that the trend towards last minute bookings is continuing, so visibility is limited," he wrote in a report.
Transat and other leisure tour operators such as WestJet Vacations and Sunwing are expected to face tougher competition after Air Canada (TSX:AC.B) unveiled its Rouge low-cost carrier that will offer flights to Europe and the Caribbean starting July 1.
Air Canada will initially only operate a few aircraft as it plans to ramp up to 50 planes once it receives Boeing 787 Dreamliners, beginning in 2014.
On the Toronto Stock Exchange, Transat's shares gained 26 cents, or 4.6 per cent, to $5.92 in afternoon trading.