Transat secures $250-million bailout loan from feds as fuel costs slam bottom line

MONTREAL – Transat A.T. Inc. has secured an additional $250 million in federal aid after high fuel costs drove it further into the red last quarter, as the travel company struggles to boost fares without losing customers.

The new low-interest line of credit from the Canada Enterprise Emergency Funding Corp. comes on top of a $150-million loan from Ottawa in July to help offset soaring energy prices caused by the Iran war.

Chief executive Annick Guérard said intense competition curtailed Transat’s ability to shift the swelling cost of fuel onto passengers’ shoulders.

“There were big (capacity) increases on the Atlantic market,” she told analysts on a conference call Thursday.

“When we introduced fuel surcharges, the demand went down. The whole Canadian market — competitors, everybody — started to launch promotions. And it never ended.”

Those deals and discounts prevented Transat from raising ticket prices and forced it to tamp down some fees.

“We’ve never seen such a highly competitive network,” Guérard said.

The parent company of Air Transat reported a loss of $106.6 million in the three months ended July 31, versus about $400 million in profits in the same period a year earlier when it benefited from a $345-million gain related to its long-term debt.

National Bank analyst Cameron Doerksen said he was “surprised” the airline failed to pass on higher fuel costs to customers. Unit revenue — a key metric gauging the average fare paid per mile per passenger — remained roughly the same as the previous summer’s, even as the cost of powering the planes surged.

In contrast, Air Canada reported that unit revenue increased by about 11 per cent in its latest quarter, “and most other airlines globally have had at least some success in raising fares to offset fuel,” Doerksen said in a note to investors.

“Unless fuel prices fall significantly or Transat can find a way to increase fares materially, the company will continue to incur losses.”

In its latest quarter, fuel costs jumped by 56 per cent or $105 million compared with the year before, the Montreal-based company said. The financial hit brings the cumulative toll of the energy crisis to $175 million so far this year, it said.

Like low-cost carriers, leisure airlines such as Air Transat are more vulnerable to fuel price swings than their larger competitors. Fuel often represents a bigger proportion of their costs, and they have fewer buffers in the form of higher-margin business passengers, myriad route options and a clientele less reactive to rising fares.

“We compete in a segment where customers are highly price-sensitive,” Guérard said.

Profit margins on its economy fare segment were comparable to those of its rivals, she said.

“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,” she noted.

To restore profitability, the CEO said Transat will keep its focus on launching a loyalty program by the end of the year — a trial run is already underway — and expanding its offering of premium fares in the second half of 2027, a move that involves reconfiguring its aircraft cabins.

The destinations for planes with the highest proportion of premium seats will include Paris, London, Portugal, Greece and Rome, she said.

Chief financial officer Jean-François Pruneau said the government funding it has secured should be “sufficient” to cover its costs.

“But that situation obviously is dynamic and volatile. And I don’t know precisely where fuel prices will be in one month, in two months or a year from now,” he qualified.

An ongoing freeze on trips to Cuba has taken another multimillion-dollar bite out of Transat’s earnings. An eight-month oil embargo by the United States has caused massive blackouts across the island, prompting resorts to shutter and airlines to leave.

Cuba, which Transat had to abandon in mid-February, is a popular destination for Canadians, and especially vacationers from Quebec, the company’s home base.

“It was a high-performing market,” Guérard said.

Third-quarter revenues rose three per cent year-over-year to $792.7 million.

On an adjusted basis, Transat said it lost $2.18 per share — far below analysts’ expectations — compared with an adjusted loss of 28 cents per share a year earlier.

Drawdowns on its $250 million in government credit will be available until Sept. 9, 2027, the company said. It comes with a 1.22 per cent interest rate until July 2029, increasing to three per cent afterwards.

Transat has tapped $80 million of the credit line so far.

It also borrowed an additional $30 million during the quarter via the federal Large Employer Emergency Financing Facility.

Transat’s net debt stood at a hefty $1.51 billion as of July 31.

Meanwhile, Porter Airlines has received a $125-million bailout loan, according to the Canada Enterprise Emergency Funding Corp.

This report by The Canadian Press was first published Sept. 10, 2026.

Companies in this story: (TSX:TRZ, TSX:AC)