Chief executive Jean-Marc Eustache said just three months ago at Transat's annual meeting that it should produce a profit in 2012. But he conceded Thursday that the hope has evaporated after a $13.2-million loss in the second quarter.
"To take a loss like we had and to turn that around in six months in the summer would be difficult," he said during a conference call with analysts.
The loss came as higher costs offset better revenues and a pickup in travellers. Eustache said Transat is looking at every part of the business to reduce costs and differentiate its offering to restore profitability.
"Market conditions have been quite demanding. We are facing a difficult market in Europe, unrest in certain end destinations, price of fuel is volatile and that challenge is compounded by high volatility on the currency markets and competition obviously remains fierce," Eustache said.
Despite challenges, including the breaching of terms of its credit facility, the company founder claimed not to be worried about its future.
"If I was worried, I would be already retired at 64...we are on track and we're (doing) everything that we have to do and we're going to do it to the end."
Transat (TSX:TRZ.B) said the loss in the second quarter ended April 30 was the equivalent of 35 cents per diluted share before adjustments and 64 cents per share on an adjusted basis.
Analysts had been looking for Transat's adjusted loss to be about four cents per share. The adjusted loss of $24.5 million compared to a profit of $600,000 or two cents per share a year ago.
On the Toronto Stock Exchange, Transat shares opened below the previous 52-week low and kept falling. They slipped to a low of $3.93 before closing a $4, down 36 cents or eight per cent.
David Tyerman of Canaccord Genuity said the results were very disappointing and further demonstrate the extreme volatility of Transat's earnings.
"How do you build a model that can generate adequate returns and profitability on any kind of consistent basis when the competition seems to be absolutely destroying your profitability fairly often," he said in an interview.
Tyerman said Transat has a solid balance sheet and is taking many steps, but he doesn't have a lot of confidence it will be able to turn things around.
"I just don't know when it will improve, I don't know if it can improve, I don't know to what degree it can improve and for an investor, that's a problem."
Transat said both its North American and European arms had operating losses in the quarter.
Overall revenue for the three months ended April 30 rose by $111 million to $1.2 billion due to $69.5 million of revenues from the acquisition of Quebec's Vacances Tours Mont-Royal and a 4.3 per cent increase in the number of travellers. That was offset by lower selling prices and higher costs.
The company had a pre-tax operating loss (EBITDA) of $26.2 million compared to earnings of $9.2 million last year.
Transatlantic capacity was down four per cent while load factors and pricing were slightly better.
Transat said that sales made in France and Canada for European and North African destinations have been difficult, resulting in a $6.6-million operating loss in the quarter.
In its larger North American arm, Transat had a $19.6-million operating loss — in contrast to a year-earlier margin of $9.8 million.
Selling prices of sun destination packages to Mexico and Caribbean declined sharply in the second half of the quarter, while fuel costs remained higher, which hurt margins.
Chief financial officer Denis Petrin said Transat is on track to deliver a $20 million improvement to its EBITDA this year, rising to $50 million in three years, through a series of cost reductions and moves to boost sales.
But he said the company will be "very, very disappointed" if that's the only impact on profitability.
Transat has cut its capacity to the Caribbean and Mexico for the summer season by 13 per cent while load factors are similar to last year with inferior pricing. It expects to cut capacity again next winter and has already shelved 12 routes, while adding five.
In addition to beginning to retrofit its Air Transat fleet, Transat has new incentives to attract early bookings and will broaden the type of vacation offering. Packages will be added next winter that include time at the beach as well as a few days in a city.
At some destinations, hotels will be clustered to offer a more festive environment with activities organized throughout the week. The idea was tested last winter in Puerto Plata, Dominican Republic.
The winter period was the fourth quarterly loss in a row for the company, which operates a variety of vacation and travel businesses including the Air Transat airline, packaged holiday operators and travel agencies.
The union representing Air Transat's 1,800 flight attendants announced Wednesday that its members had voted to support a temporary wage freeze.
Under the plan, the union agreed to suspend the payments of three annual wage increases of one per cent, as well as the payment of a lump sum of 1.5 per cent.
In return, Air Transat agreed to catch up on all salary increases and pay back the money owed by Dec. 15, 2015, at the latest, the union said.
On May 1, Air Transat and the union representing its 420 pilots agreed to a similar deal and mechanics will also vote on such terms.