Annual Report
Transat A.T. inc.
It’s our employees
who make us soar
to new heights.
Annick
Guérard
Chief Operating
Officer,
Transat A.T. Inc.
Jordi
Solé
President,
Hotel Division,
Transat A.T. Inc.
Daniel
Godbout
Senior
Vice-President
and Advisor to
the President,
Transat A.T. Inc.
Bruno
Leclaire
Chief Information
and Digital Officer,
Transat A.T. Inc.
Senior
Management
Jean-Marc
Eustache
Chairman
of the Board,
President and Chief
Executive Officer,
Transat A.T. Inc.
Jean-François
Lemay
President,
Air Transat A.T. Inc.
Bernard
Bussières
Vice-President,
General Counsel and
Corporate Secretary,
Transat A.T. Inc.
Christophe
Hennebelle
Vice-President,
Human Resources
and Corporate
Affairs,
Transat A.T. Inc.
Denis
Pétrin
Vice-President,
Finance and
Administration,
and Chief Financial
Officer,
Transat A.T. Inc.
Neha
Senior Revenue Management
Groups Coordinator South
with Transat since 2007
2019 World’s Best
Leisure Airline
Board
of Directors
Jean-Marc
Eustache
Chairman
of the Board,
President and Chief
Executive Officer,
Transat A.T. Inc.
1
Louis-Marie
Beaulieu
Chairman of
the Board,
President and Chief
Executive Officer,
Groupe Desgagnés Inc.
2
Lina
De Cesare
Corporate Director
4
Jean-Yves
Leblanc
Corporate Director
1 2 3
Raymond
Bachand
Lead Director
Strategic Advisor,
Norton Rose
Fulbright Canada
S.E.N.C.R.L., s.r.l./LLP
1 3
Lucie
Chabot
Corporate Director
3
W. Brian
Edwards
Corporate Director
1 2 4
Ian
Rae
Founder, President
and Chief Executive
Officer, CloudOps
Jacques
Simoneau
President and Chief
Executive Officer
and Director,
Gestion Univalor, LP
1 3 4
Susan
Kudzman
Corporate Director
2 4
Louise
St-Pierre
Corporate Director
Philippe
Sureau
Corporate Director
Committees
1 Executive
Committee
2 Human Resources
and Compensation Committee
3 Audit
Committee
4 Risk Management and Corporate
Governance Committee
2019
Financial Highlights
in thousands of dollars, except per share amounts and ratios
Transat A.T. Inc. is a leading integrated international tourism company specializing in holiday travel.
It serves some 60 destinations in more than 25 countries in the Americas and Europe.
Cash flows related to operating activities
Revenues
2019
2018
2017
2016
2015
64,075
68,804
161,487
43,561
108,992
2019
2018
2017
2016
2015
2,937,130
2,848,955
3,005,345
2,889,646
2,897,950
Adjusted operating income1
Net income (loss) attributable to shareholders
2019
2018
2017
2016
2015
38,003
17,195
102,025
25,776
100,608
2019
2018
2017
2016
2015
(33,191)
6,451
134,308
(41,748)
42,565
2019
2018
Variance ($)
Variance (%)
Revenues
Operating income (loss)
Adjusted operating income1
Net income (loss)
Net income (loss) attributable to shareholders
Diluted earnings (loss) per share
Cash flows related to operating activities
Cash and cash equivalents
Total assets
Long-tem debt (including current portion)
Debt ratio2
Stock price as at October 31 (TRZ)
2,937,130
2,848,955
88,175
(49,783)
(50,593)
810
38,003
17,195
20,808
(30,544)
(33,191)
(0.88)
64,075
9,993
6,451
0.17
(40,537)
(39,642)
(1.05)
68,804
(4,729)
564,844
593,654
(28,810)
1,584,927
1,566,790
18,137
-
0.66
15.37
-
0.64
6.80
-
0.02
8.57
202
3.1
1.6
121.0
(405.7)
(614.5)
(617.6)
(6.9)
(4.9)
1.2
-
3.1
126.0
0.5
Oustanding shares, end of year (in thousands)
37,747
37,545
1 See Non-IFRS financial measures section.
2 Debt ratio: total liabilities divided by total assets.
Message to Shareholders
Chairman of the Board,
President and
Chief Executive Officer
The beginning
of a new story
Jean-Marc Eustache
December 11, 2019
On August 23, you voted 94.77% in favour of the plan of
arrangement that will lead to the sale of Transat A.T. to
Air Canada. If all regulatory approvals are received as
expected, the transaction will close during the second
quarter of the 2020 calendar year.
This transaction, which was unquestionably the headline
of the past year, is excellent news for both Transat and
Air Canada. It will create a champion of the Canadian and
Quebec travel industries by uniting two companies that,
according to Skytrax, are respectively the world’s best leisure
airline and North America’s best carrier.
The environment is becoming increasingly competitive
for tour operators and airlines, as recently illustrated by
the Thomas Cook debacle as well as those involving
medium-sized airlines such as XL Airways in France, Flybmi
in the UK, WOW Air in Iceland and Jet Airways in India.
Against this background, joining a company that is capable
of positioning itself on the world stage is the best-case
scenario for Transat’s future.
For customers, Transat’s alliance with Air Canada, a company
that understands our industry and has shown its ability to
succeed, means more choice, more destinations and more
connections. It also means better use of our aircraft, thanks
to the power of an expanded network. And it represents the
best security for the company, the brand and the jobs we
have created over more than 30 years in Quebec, Canada and
the world.
It is also obviously good news for shareholders, because the price of
$18 will represent a very significant premium over the average share
price prior to the first announcement that talks were under way.
We have invested a lot of energy in recent months in making
the transaction possible and we are continuing to concentrate our
efforts on obtaining our expected regulatory approvals. But that
doesn’t mean we have lost sight of the day-to-day. On the contrary,
we have continued implementing the key elements of our strategic
plan, focusing specifically on those that can produce results in
the shorter term.
These short-term initiatives enabled us to end the year with an
adjusted net loss of $9.4 million, an improvement of nearly $15 million
over the previous year. This is far from being the result we hoped for
but it is satisfactory to note that, even given the circumstances, the
needle is moving in the right direction. The financial statements show
a net loss attributable to shareholders of $33.2 million, compared with
net income attributable to shareholders of $6.5 million a year earlier,
essentially explained by the transaction costs posted this year and by
last year’s gain on the disposal of Jonview Canada.
As for advances this year, we above all improved our network and
fleet, with the most visible element of this change being the arrival
of our first two A321neo LR aircraft. On May 3, we were very proud to
be the first airline in North America, and one of the first in the world,
to take delivery of one of these jets, the first in our order of 15. This
aircraft boasts many advantages. Its entirely redesigned cabin gives
our passengers the feeling that they are on vacation from the moment
of takeoff. It consumes 15% less fuel than the previous generation
of Airbuses, which represents a benefit in terms of costs and
environmental protection. And it is 50% quieter, both for passengers
and for airport-area communities. Because of these features, it is
the undisputed greenest aircraft in its class.
Finally, its long range increases our efficiency on our two markets:
sun and transatlantic, and this helped us achieve our goal of
increasing our flight frequencies, particularly to Europe and in
the domestic market.
We also continued efforts to grow our unit revenues. On the one
hand, our ancillary revenues increased significantly; on the other,
we continued the transformation of our revenue-management
organization, which enabled us to improve our unit revenues across
the network.
The beginning of a new story
At the same time, we kept up the pressure on our cost-reduction
initiatives, while continuing to enhance our customers’ satisfaction.
Our indicators on that front—satisfaction and net promoter score, or
NPS—continue to progress. And once again we earned many honours
in this area, including Agents’ Choice Awards from Baxter Travel Media
(Best Tour Operator and Favourite Overall Supplier) and Trophées
Uni-Vers awards from the Association des agents de voyages
du Québec (Best Airline and Best Tour Operator).
As for the hotel division, we slowed our headway during the year
while still continuing to work very hard to prepare the construction
of our first resort and an eventual restart of this area of business.
We are continuing to explore every avenue that will enable us
to bring this wonderful project to fruition.
And so, on the strength of operations that are more solid than ever,
we embark on the year 2020 impatient to conclude the transaction
that will open a new chapter in Transat’s story.
In conclusion, I want to thank those who have devoted so much
energy to our progress: our board of directors—and particularly
its special committee whose work led to the conclusion of the
transaction—our customers, who continue to be as numerous as ever
and to place their trust in us, and especially all of our employees,
whose loyalty and unwavering commitment ensure that we are able to
maintain a quality of service and performance that are at least as good
as in previous years, if not better. They are the ones who have built
Transat and they are the ones who will continue to make it prosper.
Management’s Discussion and Analysis
TABLE OF CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
Caution regarding forward-looking statements .................................................................. 6
Non-IFRS financial measures ............................................................................................. 8
Financial highlights ........................................................................................................... 11
Overview ......................................................................................................................... 12
Revisiting our September 12, 2019 outlook ........................................................................ 16
Recent developments ...................................................................................................... 16
Business disposals ............................................................................................................ 17
Consolidated operations .................................................................................................. 18
Financial Position, Liquidity and Capital Resources ........................................................... 24
10.
Other .............................................................................................................................. 29
11.
12.
13.
Accounting ..................................................................................................................... 30
Risks and Uncertainties .................................................................................................... 36
Controls and Procedures ................................................................................................. 45
14.
Outlook ........................................................................................................................... 46
Management’s Report ................................................................................................................... 47
Independent Auditor’s Report ....................................................................................................... 48
Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) provides a review of Transat A.T. Inc.’s operations, performance and
financial position for the year ended October 31, 2019, compared with the year ended October 31, 2018, and should be read
in conjunction with the audited consolidated financial statements and notes thereto. Unless otherwise indicated, the
information contained herein is dated as of December 11, 2019. You will find more information about us on Transat’s website
at www.transat.com and on SEDAR at www.sedar.com, including the Attest Reports for the year ended October 31, 2019 and
the Annual Information Form.
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”). We occasionally refer to non-IFRS financial measures in the MD&A. See the Non-IFRS financial measures
section for more information. All dollar figures in this MD&A are in Canadian dollars unless otherwise indicated. The terms
“Transat,” “we,” “us,” “our” and the “Corporation” mean Transat A.T. Inc. and its subsidiaries, unless otherwise indicated.
1. CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains certain forward-looking statements with respect to the Corporation. These forward-looking statements
are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “potential,” “predict,” “project,” “will,” “would,” the negative of these terms and similar terminology, including
references to assumptions. All such statements are made pursuant to applicable Canadian securities legislation. Such
statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or
future actions.
Forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ
materially from those contemplated by these forward-looking statements. Results indicated in forward-looking statements
may differ materially from actual results for a number of reasons, including without limitation, economic conditions, changes
in demand due to the seasonal nature of the business, extreme weather conditions, climatic or geological disasters, war,
political instability, real or perceived terrorism, outbreaks of epidemics or disease, consumer preferences and consumer
habits, consumers’ perceptions of the safety of destination services and aviation safety, demographic trends, disruptions to
the air traffic control system, the cost of protective, safety and environmental measures, competition, the Corporation’s
ability to maintain and grow its reputation and brand, the availability of funding in the future, fluctuations in fuel prices and
exchange rates and interest rates, the Corporation’s dependence on key suppliers, the availability and fluctuation of costs
related to our aircraft, information technology and telecommunications, changes in legislation, unfavourable regulatory
developments or procedures, pending litigation and third party lawsuits, the ability to reduce operating costs, the
Corporation’s ability to attract and retain skilled resources, labour relations, collective bargaining and labour disputes,
pension issues, maintaining insurance coverage at favourable levels and conditions and at an acceptable cost, and other risks
detailed in the Risks and Uncertainties section of this MD&A.
This MD&A also contains certain forward-looking statements about the Corporation concerning a transaction involving the
acquisition of all the shares of the Corporation by Air Canada [the “transaction with Air Canada”]. These statements are based
on certain assumptions deemed reasonable by the Corporation, but are subject to certain risks and uncertainties, several of
which are outside the control of the Corporation, which may cause actual results to vary materially. In particular, the
completion of a transaction will be subject to customary closing conditions, including regulatory approvals, particularly those
of Canada and the European Union. Notably, a public interest assessment regarding the arrangement is being undertaken at
present by Transport Canada with input from the Commissioner of Competition. If the required regulatory approvals are
obtained and conditions are met, it is expected that the transaction will close by the second quarter of the 2020 calendar
year.
The reader is cautioned that the foregoing list of factors is not exhaustive of the factors that may affect any of the
Corporation’s forward-looking statements. The reader is also cautioned to consider these and other factors carefully and
not to place undue reliance on forward-looking statements.
2019 Annual Report Transat A.T. Inc. | 6
Management’s Discussion and Analysis
The forward-looking statements in this MD&A are based on a number of assumptions relating to economic and market
conditions as well as the Corporation’s operations, financial position and transactions. Examples of such forward-looking
statements include, but are not limited to, statements concerning:
The outlook whereby Air Canada will acquire all of the shares of the Corporation.
The outlook whereby if the required regulatory approvals are obtained and conditions are met, it is
expected that the transaction with Air Canada will be completed by the second quarter of the 2020 calendar
year.
The outlook whereby the Corporation has the resources it needs to meet its 2020 objectives and to
continue building on its long-term strategies.
The outlook whereby the Corporation expects revenues and total travellers to increase compared with 2019.
The outlook whereby the Corporation expects to generate positive cash flows from operating activities in
2020.
The outlook whereby additions to property, plant and equipment and intangible assets could amount to
approximately $70.0 million, excluding any land and hotel acquisitions related to the development of our
hotel chain.
The outlook whereby the Corporation will be able to meet its obligations with cash on hand, cash flows from
operations and drawdowns under existing credit facilities.
The outlook whereby the Corporation expects that for winter 2020 on the sun destinations program, the
impact of fluctuations in the Canadian dollar, combined with decreased fuel costs, will result in a nil
increase in operating expenses if the dollar against the U.S. dollar and aircraft fuel prices remain stable.
The outlook whereby the Corporation expects its results for the winter season to be slightly higher than
those of last year.
In making these statements, the Corporation has assumed, among other things, that travellers will continue to travel, that
credit facilities will continue to be made available as in the past, that management will continue to manage changes in cash
flows to fund working capital requirements for the full year and that fuel prices, foreign exchange rates, selling prices and
hotel and other costs will remain stable. If these assumptions prove incorrect, actual results and developments may differ
materially from those contemplated by the forward-looking statements contained in this MD&A.
The Corporation considers that the assumptions on which these forward-looking statements are based are reasonable.
These statements reflect current expectations regarding future events and operating performance, speak only as of the date
this MD&A is issued, and represent the Corporation’s expectations as of that date. The Corporation disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise, other than as required by applicable securities legislation.
2019 Annual Report Transat A.T. Inc. | 7
Management’s Discussion and Analysis
2. NON-IFRS FINANCIAL MEASURES
This MD&A was prepared using results and financial information determined under IFRS. In addition to IFRS financial
measures, management uses non-IFRS measures to assess the Corporation’s operational performance. It is likely that the
non-IFRS financial measures used by the Corporation will not be comparable to similar measures reported by other issuers
or those used by financial analysts as their measures may have different definitions. The measures used by the Corporation
are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial
performance measures.
Generally, a non-IFRS financial measure is a numerical measure of an entity’s historical or future financial performance,
financial position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-
IFRS financial measures are important as they provide users of our consolidated financial statements with a better
understanding of the results of our recurring operations and their related trends, while increasing transparency and clarity
into our operating results. Management also believes these measures to be useful in assessing the Corporation’s capacity to
fulfil its financial obligations.
By excluding from our results items that arise mainly from long-term strategic decisions and/or do not, in our opinion, reflect
our operating performance for the period, such as the change in fair value of fuel-related derivatives and other derivatives,
gain (loss) on business disposals, restructuring charges, asset impairment, depreciation and amortization and other
significant unusual items, and by including premiums for fuel-related derivatives and other derivatives matured during the
period, we believe this MD&A helps users to better analyze our results, as well as our ability to generate cash flows from
operations. Furthermore, the use of non-IFRS measures helps users by enabling better comparability of results from one
period to another and better comparability with other businesses in our industry.
2019 Annual Report Transat A.T. Inc. | 8
Management’s Discussion and Analysis
The non-IFRS measures used by the Corporation are as follows:
Adjusted operating
income (loss)
Operating income (loss) before depreciation and amortization expense, restructuring charge,
lump-sum payments related to collective agreements and other significant unusual items, and
including premiums for fuel-related derivatives and other derivatives matured during the period.
The Corporation uses this measure to assess the operational performance of its activities before
the aforementioned items to ensure better comparability of financial results.
Adjusted pre-tax
income (loss)
Income (loss) before income tax expense before change in fair value of fuel-related derivatives
and other derivatives, gain (loss) on business disposals, restructuring charge, lump-sum
payments related to collective agreements, asset impairment and other significant unusual
items, and including premiums for fuel-related derivatives and other derivatives matured during
the period. The Corporation uses this measure to assess the financial performance of its
activities before the aforementioned items to ensure better comparability of financial results.
Adjusted net income
(loss)
Adjusted net
income (loss) per
share
Adjusted operating
leases
Total debt
Total net debt
Net income (loss) attributable to shareholders before net income (loss) from discontinued
operations, change in fair value of fuel-related derivatives and other derivatives, gain (loss) on
business disposal, restructuring charge, lump-sum payments related to collective agreements,
asset impairment and other significant unusual items, and including premiums for fuel-related
derivatives and other derivatives matured during the period, net of related taxes. The
Corporation uses this measure to assess the financial performance of its activities before the
aforementioned items to ensure better comparability of financial results. Adjusted net
income (loss) is also used in calculating the variable compensation of employees and
senior executives.
Adjusted net income (loss) divided by the adjusted weighted average number of outstanding
shares used in computing diluted earnings (loss) per share.
Aircraft rental expense for the past four quarters multiplied by 5.
Long-term debt plus the amount for adjusted operating leases. Management uses total debt to
assess the Corporation’s debt level, future cash needs and financial leverage ratio. Management
believes this measure is useful in assessing the Corporation’s capacity to meet its current and
future financial obligations.
Total debt (described above) less cash and cash equivalents. Total net debt is used to assess the
cash position relative to the Corporation’s debt level. Management believes this measure is
useful
future
financial obligations.
the Corporation’s capacity
its current and
in assessing
to meet
2019 Annual Report Transat A.T. Inc. | 9
Management’s Discussion and Analysis
The following tables reconcile the non-IFRS financial measures to the most comparable IFRS financial measures:
(in thousands of Canadian dollars, except per share amounts)
Operating income (loss)
Special items
Depreciation and amortization
Premiums related to fuel-related derivatives and other
derivatives matured during the year
Adjusted operating income
Income (loss) before income tax expense
Special items
Change in fair value of fuel-related derivatives and other derivatives
Gain on business disposals
Foreign exchange gain on business disposal
Premiums related to fuel-related derivatives and other
derivatives matured during the year
Adjusted pre-tax income (loss)
Net income (loss) attributable to shareholders
Special items
Change in fair value of fuel-related derivatives and other derivatives
Gain on business disposals
Foreign exchange gain on business disposal
Premiums related to fuel-related derivatives and other
derivatives matured during the year
Tax impact
Adjusted net income (loss)
2019
$
(49,783)
23,875
64,078
2018
Restated(1)
$
(50,593)
8,962
59,125
2017
$
34,720
2,925
68,470
(167)
38,003
(299)
17,195
(4,090)
102,025
(38,766)
23,875
8,664
(9)
—
5,044
8,962
(8,360)
(31,064)
—
151,804
2,925
(9,187)
(86,616)
(15,478)
(167)
(6,403)
(299)
(25,717)
(4,090)
39,358
(33,191)
23,875
8,664
(9)
—
6,451
8,962
(8,360)
(31,064)
—
134,308
2,925
(9,187)
(86,616)
(15,478)
(167)
(8,609)
(9,437)
(299)
277
(24,033)
(4,090)
7,237
29,099
Adjusted net income (loss)
Adjusted weighted average number of outstanding shares used
in computing diluted earnings (loss) per share
Adjusted net income (loss) per share
1 The Corporation has restated its consolidated financial statements as at October 31, 2018. See Restatement section.
(9,437)
(24,033)
29,099
37,673
(0.25)
37,562
(0.64)
37,040
0.79
October 31, October 31, October 31,
2017
$
2019
$
2018
$
Aircraft rent
Multiple
Adjusted operating leases
Long-term debt
Adjusted operating leases
Total debt
Total debt
Cash and cash equivalents
Total net debt
143,784
5
718,920
—
718,920
718,920
124,454
5
622,270
—
622,270
622,270
132,139
5
660,695
—
660,695
660,695
718,920
(564,844)
154,076
622,270
(593,654)
28,616
660,695
(593,582)
67,113
2019 Annual Report Transat A.T. Inc. | 10
Management’s Discussion and Analysis
3. FINANCIAL HIGHLIGHTS
(in thousands of Canadian dollars, except per share amounts)
Consolidated Statements of Income (Loss)
Revenues
Operating income (loss)
Net income (loss) attributable to shareholders
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted operating income(2)
Adjusted net income (loss)(2)
Adjusted net income (loss) per share(2)
Consolidated Statements of Cash Flows
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Consolidated Statements of Financial Position
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved
(current and non-current)
2019
$
2018
Restated(1)
$
Change
2017
2019
2018
$
%
%
2,937,130
(49,783)
(33,191)
(0.88)
(0.88)
38,003
(9,437)
(0.25)
2,848,955
(50,593)
6,451
0.17
0.17
17,195
(24,033)
(0.64)
3,005,345
34,720
134,308
3.63
3.63
102,025
29,099
0.79
64,075
(92,123)
(1,703)
941
68,804
(93,644)
(430)
(982)
161,487
97,901
(3,596)
450
(28,810)
(26,252)
256,242
As at
As at
October 31, October 31, October 31,
2017
As at
2019
2018
Restated(1)
$
$
3.1
1.6
(614.5)
(617.6)
(617.6)
121.0
60.7
60.9
(6.9)
1.6
(296.0)
195.8
(9.7)
(5.2)
(245.7)
(95.2)
(95.3)
(95.3)
(83.1)
(182.6)
(181.0)
(57.4)
(195.7)
88.0
(318.2)
(110.2)
Change
2019
Change
2018
$
%
%
564,844
593,654
593,582
(4.9)
0.0
352,771
917,615
1,584,927
—
718,920
338,919
932,573
1,566,790
—
622,270
309,064
902,646
1,453,216
—
660,695
4.1
(1.6)
1.2
—
15.5
9.7
3.3
7.8
—
(5.8)
67,113
438.4
(57.4)
Total assets
Debt (current and non-current)
Total debt(2)
Total net debt(2)
1 The Corporation has restated its consolidated financial statements as at October 31, 2018. See Restatement section.
2 See section 2 – Non-IFRS financial measures
154,076
28,616
2019 Annual Report Transat A.T. Inc. | 11
Management’s Discussion and Analysis
4. OVERVIEW
THE HOLIDAY TRAVEL INDUSTRY
The holiday travel industry consists of tour operators, traditional and online travel agencies, destination service providers,
hotel operators, and air carriers. Each of these subsectors includes companies with different operating models.
Generally, outgoing tour operators purchase the various components of a trip locally or abroad and sell them separately or
in packages to consumers in their local markets, through travel agencies or via the Web. Incoming tour operators design
travel packages or other travel products consisting of services they purchase in their local market for sale in foreign markets,
generally through other tour operators or travel agencies. Destination service providers are based at destination and sell a
range of optional services to travellers onsite for spontaneous consumption, such as excursions or sightseeing tours. These
companies also provide outgoing tour operators with logistical support services, such as ground, maritime or flight transfers
between airports and hotels or ports and hotels. Travel agencies, operating independently, in networks or online, are
distributors serving as intermediaries between suppliers and consumers. Hotel operators sell accommodation, on an all-
inclusive basis or not, either directly, through travel agencies or through tour operators. Air carriers sell seats through travel
agencies or directly to tour operators that use them in building packages, or directly to consumers.
CORE BUSINESS, VISION AND STRATEGY
Core Business
Transat is a leading integrated international tourism company specializing in holiday travel, which operates and markets its
services in the Americas and Europe. It develops and markets holiday travel services in packages, including air travel and
hotel stays, and air-only formats. Transat operates under the Transat and Air Transat brands mainly in Canada, France, the
United Kingdom and in ten other European countries, directly or through intermediaries, as part of a multi-channel strategy.
Transat is also a retail distributor, both online and through travel agencies, some of which it owns. It offers destination
services in Mexico, the Dominican Republic and Jamaica. Recently, Transat started setting up a division with a mission to own
and operate hotels in the Caribbean and Mexico and to market them, particularly in the United States, in Europe and
in Canada.
Vision
As a leader in holiday travel, Transat intends to pursue growth by inspiring trust in travellers and by offering them an
experience that is exceptional, heart-warming and reliable. Our customers are our primary focus, and sustainable
development of tourism is our passion. We intend to expand our range of operations and mission to include the
hotel business.
Strategy
As part of its 2018–2022 strategic plan, Transat set a two-pronged objective of building sustainable profitability: improve and
strengthen its current business model and pursue hotel development.
Hotel development will be achieved by creating a business unit to operate all-inclusive hotels in the Caribbean and Mexico,
some wholly owned and some not. This hotel chain will strengthen Transat’s profitability, particularly during winter, while
enabling it to deliver a controlled end-to-end experience to its Canadian, European and U.S. customers.
Furthermore, Transat will strengthen its current model by maintaining its focus on satisfying the expectations of leisure
customers with user-friendly service for an affordable price. This will be made possible by greater synergy between the
Corporation’s various divisions in Canada, continued efforts to increase efficiency and reduce costs, continuous
improvement in the Corporation’s digital footprint and a special focus on the development of certain functions, such as
revenue management or air network planning.
2019 Annual Report Transat A.T. Inc. | 12
Management’s Discussion and Analysis
Lastly, corporate responsibility, whether in terms of the environment, customers, employees, partners, or governance, will
remain a key part of Transat’s strategy.
As of August 23, 2019, Transat’s shareholders approved an arrangement agreement [the “Arrangement Agreement”] with Air
Canada, under which it is provided that Air Canada will acquire all issued and outstanding shares of Transat. If regulatory
approvals are obtained and the transaction occurs, Transat’s business will be incorporated into Air Canada’s strategic plan.
Meanwhile, the Corporation continues to implement its plan, but has slowed down investment in hotel development. The
Corporation continues its cost reduction and service enhancement efforts, as well as to maintain its ability to fully implement
its plan should the transaction not close.
Accordingly, for fiscal 2020, Transat has set the following objectives:
1. Obtain the regulatory authorizations necessary to complete the transaction with Air Canada, while
maintaining its capacity to operate independently;
2.
Improve financial performance;
3. Optimize flight programs in order to maximize revenues and profitability, including increased network
density, fleet utilization and connectivity;
4. Continue the transformation of revenue management practices and increase the revenue per unit;
5. Continue cost control and cost reduction initiatives;
6. Continue to increase our share of direct distribution;
7. Continue to improve the customer satisfaction and maintain a favourable brand perception; and
8. Maintain the satisfaction and engagement of our teams and encourage retention.
REVIEW OF OBJECTIVES AND ACHIEVEMENTS FOR 2019
The main objectives and achievements for fiscal 2019 were as follows:
Develop our hotel division: start construction work on the first hotel in Mexico, acquire a second parcel of land
or a hotel in operation and finish setting up the team
The Corporation has slowed down its investments in hotel development but continues the work in accordance with the
Arrangement Agreement.
Strengthen our air network: increase network density by increasing frequencies on our main routes and consider
potential feeder/defeeder alliances to increase route density
Frequencies have been increased, particularly for Europe and domestic flights. Transat entered into the Arrangement
Agreement with Air Canada after concluding that it was the best alliance to power its routes.
Increase our revenues, by improving ancillary revenue streams and by attaining a higher level of expertise and
the implementation of new practices within the revenue management department
Ancillary revenue improvement objectives have been met, and the implementation of an enhanced revenue management
organization has allowed us to increase revenue per unit across the network.
2019 Annual Report Transat A.T. Inc. | 13
Management’s Discussion and Analysis
Transform our fleet: complete the changes planned for this year, including the introduction of the first
A321neo LRs, finalize fleet planning over 3–5 years, while improving reliability, and integrating new pilot fatigue
rules and the passenger bill of rights
The first two A321neo LRs were welcomed into the fleet and the organization was prepared to adapt to new pilot fatigue rules
and passenger bill of rights. However, in the context of the transaction with Air Canada, emphasis was mainly put on short-
term plans rather than long-term plans.
Reduce and control costs
A cost control and continuous improvement structure was put in place, which allowed us to carry out the cost control and
cost reduction initiatives planned for the year .
Optimize distribution, namely by increasing our involvement in direct distribution channels
The share of direct distribution increased, particularly for packages. The objectives set were not entirely met, particularly as
a result of a change in the destination mix.
Increase customer satisfaction, measured by our Net Promoter Score
The Net Promoter Score increased significantly. Customer satisfaction is on the rise.
Expand our digital footprint with customers and digitize and automate business processes
We have deployed the new version of the airline website and mobile app, and an online conversation tool widely used
by consumers.
Unite our teams and maintain their engagement
In the context of the transaction with Air Canada, the focus was maintained on retention and engagement. Our engagement
scores, measured using the Officevibe tool, remained constant.
KEY PERFORMANCE DRIVERS
The following key performance drivers are essential to the successful implementation of our strategy and the achievement
of our objectives.
Adjusted operating
income (loss)
Capacity
Revenue growth
Obtain an adjusted operating income (loss) margin higher than 3% of revenues.
Increase capacity in all regions in Canada and in Europe in our traditional markets
and establish our first all-inclusive hotel banner in the Caribbean and Mexico.
Grow revenues at the pace of the market, i.e., around 3% per year in our traditional
markets, and operate 5,000 rooms within six years after the project restart in the
hotel business, either owned or managed.
2019 Annual Report Transat A.T. Inc. | 14
Management’s Discussion and Analysis
ABILITY TO DELIVER ON OUR OBJECTIVES
Our ability to deliver on our objectives is dependent on our financial and non-financial resources, both of which have
contributed in the past to the success of our strategies and achievement of our objectives.
Our financial resources are as follows:
Cash
Our balances of cash and cash equivalents not held in trust or otherwise reserved
totalled $564.8 million as at October 31, 2019. Our continued focus on expense
reductions and operating income growth should maintain these balances at healthy
levels and support the implementation of our hotel division.
Credit facilities
A revolving credit facility agreement totalling $50.0 million, among others, is also
available for operating purposes.
Our non-financial resources include:
Brand
Structure
Employees
The Corporation has taken the necessary steps to foster a distinctive brand image
and raise its profile, including its sustainable tourism approach.
Our vertically integrated structure enables us to ensure better quality control over
our products and services and facilitates implementing programs to achieve gains
in efficiency.
Our employees work together as a team and are committed to ensuring overall
customer satisfaction and contributing to improving the Corporation’s effectiveness.
In addition, we believe that the Corporation has strong management.
Supplier relationships
We have exclusive access to certain hotels at sun destinations as well as over
30 years of privileged relationships with many hotels at these destinations and
in Europe.
Transat has the resources it needs to meet its 2020 objectives and continue building on its long-term strategies.
2019 Annual Report Transat A.T. Inc. | 15
Management’s Discussion and Analysis
5. REVISITING OUR SEPTEMBER 12, 2019 OUTLOOK
What we said
What we did
Fuel/foreign
exchange effect –
transatlantic program
No significant changes in operational expenses
for the fourth quarter of 2019
Overall results
For the fourth quarter of 2019, results slightly
higher than in 2018.
For the fourth quarter of 2019, the fuel/foreign
exchange effect resulted in no significant
changes
the
in operating expenses
transatlantic program, our main program for
the period.
in
For the fourth quarter of 2019, adjusted net
income1 of $27.2 million was higher than in
2018, owing mainly to higher average selling
prices across all our programs.
1 See section 2 – Non-IFRS financial measures
6. RECENT DEVELOPMENTS
On June 27, 2019, the Corporation announced that it had concluded a definitive Arrangement Agreement that provides for
Air Canada’s acquisition of all issued and outstanding shares of Transat and its combination with Air Canada.
On August 23, 2019, a significant majority of the Corporation’s shareholders voted in favour of the special resolution
approving the previously announced plan of arrangement pursuant to which Air Canada will acquire all of the issued and
outstanding Class A variable voting shares and Class B voting shares of Transat for a cash consideration of $18.00 per share.
On August 29, 2019, the Corporation announced that the Superior Court of Quebec issued a final order approving the plan
of arrangement with Air Canada. The arrangement remains subject to certain customary closing conditions, including
regulatory approvals, particularly those of Canada and the European Union. Notably, a public interest assessment regarding
the arrangement is being undertaken by Transport Canada with input from the Commissioner of Competition. If the required
regulatory approvals are obtained and conditions are met, it is expected that the transaction will be completed by the second
quarter of the 2020 calendar year.
The hotel development strategy and related objectives set out in the Strategy section are affected by the plan of arrangement
as the Corporation has agreed to limit its commitments and expenses related to the execution of its hotel strategy in the
period leading up to the closing of the transaction with Air Canada.
During the year ended October 31, 2019, the Corporation did not grant any units in connection with the stock option, PSU
and RSU plans due to the transaction with Air Canada.
2019 Annual Report Transat A.T. Inc. | 16
Management’s Discussion and Analysis
7. BUSINESS DISPOSALS
JONVIEW CANADA INC.
On November 30, 2017, the Corporation completed the sale of its wholly owned subsidiary Jonview Canada Inc. [“Jonview”],
which has an incoming tour operator business in Canada, to Japanese multinational H.I.S. Co. Ltd., which specializes in travel
distribution, following approval of the transaction by the Competition Bureau of Canada and compliance with other
customary conditions. Under the terms of the agreement, the selling price amounted to $48.9 million. The disposed
subsidiary’s net assets amounted to $13.4 million as at November 30, 2017. During the year ended October 31, 2018, the
Corporation recognized a gain on business disposal of $31.3 million. During the year ended October 31, 2019, the Corporation
recorded a $0.3 million downward adjustment to the gain on business disposal related to the amount claimed by
H.I.S. Co. Ltd. for uncollected trade receivables as at May 31, 2019.
Since Jonview’s operations do not represent a principal and separate line of business for the Corporation, its results are
included in the Corporation’s net income from continuing operations reported in the consolidated statements of income
(loss) and comprehensive income (loss) for the years ended October 31, 2018 and 2017.
OCEAN HOTELS
On October 4, 2017, the Corporation completed the sale of its 35% minority interest in Ocean Hotels to H10 Hotels for an
amount of US$150.5 million [$187.5 million], received in cash. The disposed interest had a carrying value of $97.3 million as at
October 4, 2017. During the year ended October 31, 2017, the Corporation recognized a gain on business disposal of
$86.6 million, net of transaction costs of $1.7 million, as well as a foreign exchange gain of $15.5 million realized on the
reclassification of the cumulative exchange differences related to the investment.
Under the terms of the agreement, on March 8, 2018, the selling price was adjusted downward by US$1.5 million [$1.9 million]
to US$149.0 million [$185.6 million]. During the year ended October 31, 2018, the Corporation recognized a downward
adjustment of $0.2 million to the gain on business disposal as a result of additional transaction costs incurred in connection
with the closing of the transaction, bringing the total amount of the gain on disposal of Ocean Hotels to $86.4 million.
2019 Annual Report Transat A.T. Inc. | 17
Management’s Discussion and Analysis
8. CONSOLIDATED OPERATIONS
(in thousands of dollars)
Continuing operations
Revenues
Operating expenses
Costs of providing tourism services
Aircraft fuel
Salaries and employee benefits
Aircraft maintenance
Sales and distribution costs
Airport and navigation fees
Aircraft rent
Other airline costs
Other
Share of net loss (income) of an associate and a joint venture
Depreciation and amortization
Special items
Operating income (loss)
Financing costs
Financing income
Change in fair value of fuel-related derivatives
and other derivatives
Gain on business disposals
Foreign exchange gain on business disposal
Foreign exchange loss (gain) on non-current monetary items
Income (loss) before income tax expense
Income taxes (recovery)
Current
Deferred
Net income (loss) for the year
Net income (loss) attributable to:
Shareholders
Non-controlling interests
Earnings (loss) per share
Basic
Diluted
2019
$
2018
Restated(1)
$
$
2017
Change
2,937,130
2,848,955
3,005,345
808,937
517,588
412,375
279,283
209,344
158,618
143,784
262,477
105,304
1,250
64,078
23,875
2,986,913
(49,783)
1,520
(21,332)
863,105
498,512
386,898
237,918
209,921
149,699
124,454
263,272
97,577
105
59,125
8,962
2,899,548
(50,593)
2,061
(17,935)
1,202,455
358,558
371,863
203,669
184,783
134,665
132,139
225,512
96,729
(11,143)
68,470
2,925
2,970,625
34,720
2,134
(8,363)
8,664
(9)
—
140
(38,766)
1,028
(9,250)
(8,222)
(30,544)
(8,360)
(31,064)
—
(339)
5,044
(6,494)
1,545
(4,949)
9,993
(9,187)
(86,616)
(15,478)
426
151,804
18,684
(5,252)
13,432
138,372
(33,191)
2,647
(30,544)
6,451
3,542
9,993
134,308
4,064
138,372
%
3.1
(6.3)
3.8
6.6
17.4
(0.3)
6.0
15.5
(0.3)
7.9
1,090.5
8.4
166.4
3.0
1.6
(26.2)
18.9
(203.6)
(100.0)
N/A
(141.3)
(868.6)
115.8
(698.7)
(66.1)
(405.7)
(614.5)
(25.3)
(405.7)
%
(5.2)
(28.2)
39.0
4.0
16.8
13.6
11.2
(5.8)
16.7
0.9
(100.9)
(13.6)
206.4
(2.4)
(245.7)
(3.4)
114.5
(9.0)
(64.1)
(100.0)
(179.6)
(96.7)
(134.8)
129.4
(136.8)
(92.8)
(95.2)
(12.8)
(92.8)
(95.3)
(95.3)
(0.88)
(0.88)
0.17
0.17
3.63
3.63
(617.6)
(617.6)
1 The Corporation has restated its consolidated financial statements as at October 31, 2018. See Restatement section.
RESTATEMENT OF COMPARATIVE FIGURES
The Corporation adopted IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers, on
November 1, 2018, and the consolidated statement of income for the year ended October 31, 2018 has been restated. Total
revenues for the year ended October 31, 2018 have been restated to present revenues on the same basis as for the year
ended October 31, 2019. Costs of providing tourism services, sales and distribution costs, other costs and the change in fair
value of fuel-related derivatives and other derivatives for the year ended on October 31, 2018 were also restated. The main
changes related to the adoption of IFRS 9 and IFRS 15 are described in note 4 to the consolidated financial statements for
the year ended October 31, 2019.
REVENUES
2019 Annual Report Transat A.T. Inc. | 18
Management’s Discussion and Analysis
We generate our revenues from outgoing tour operators, air transportation, travel agencies, distribution, incoming tour
operators and services at travel destinations.
For the year ended October 31, 2019, our revenues were up $88.2 million (3.1%). The $29.4 million increase in revenues
recorded during the winter season resulted mainly from higher average selling prices across all of our programs, combined
with a 2.8% rise in the number of travellers in the sun destinations program, our main program for the period, resulting from
our decision to increase our capacity in that program. During winter, higher revenues were partially offset by a greater
proportion of flight-only sales, which generate lower revenue per unit than packages. During the summer season, revenues
were $58.7 million higher than in 2018. The higher revenues were driven primarily by the increase in average selling prices
and load factors across all our programs, as well as growth in ancillary revenues.
For 2020, we expect revenues and the total number of travellers to increase compared with 2019.
OPERATING EXPENSES
Total operating expenses were up $87.4 million (3.0%) for the year compared with 2018. The increase is primarily attributable
to our winter season, during which we saw a higher number of travellers, driven by our decision to increase our capacity by
2.2% in the sun destinations program, our main program for the period, combined with the weakening of the Canadian dollar
against the U.S. dollar and higher fuel prices. The increase is also attributable to the summer season, due to the costs related
to the transaction with Air Canada and an increase in aircraft maintenance costs.
Costs of providing tourism services
Costs of providing tourism services are incurred by our tour operators. They include hotel room costs and the cost of booking
blocks of seats or full flights with carriers other than Air Transat. The $54.2 million (6.3%) decrease was mainly due to the
lower number of packages sold than in 2018, partially offset by the unfavourable impact of the weakening of the Canadian
dollar against the U.S. dollar.
Aircraft fuel
Aircraft fuel expense rose $19.1 million (3.8%) during the year, owing primarily to the weakening of the Canadian dollar against
the U.S. dollar, combined with increased capacity compared with 2018 and higher fuel prices.
Salaries and employee benefits
Salaries and employee benefits were up $25.5 million (6.6%) to $412.4 million for the year ended October 31, 2019. The
increase resulted primarily from annual salary reviews and the hiring of pilots and mechanics following the increased capacity
in 2019.
Aircraft maintenance
Aircraft maintenance costs consist mainly of engine and airframe maintenance expenses incurred by Air Transat for leased
aircraft. Compared with 2018, these expenses increased by $41.4 million (17.4%) during the year. This increase resulted from
the higher number of maintenance events than last year and the weakening of the Canadian dollar against the U.S. dollar.
Sales and distribution costs
Sales and distribution costs include commissions, which are expenses paid by tour operators to travel agencies for their
services as intermediaries between the tour operator and the consumer, credit card fees, distribution expenses and
marketing expenses. Sales and distribution costs amounted to $209.3 million, down $0.6 million (0.3%) compared with
fiscal 2018. This decrease was mainly due to lower marketing fees, related to our cost reduction efforts, partially offset by an
increase in credit card fees and distribution fees related to our higher capacity compared with 2018.
2019 Annual Report Transat A.T. Inc. | 19
Management’s Discussion and Analysis
Airport and navigation fees
Airport and navigation fees consist mainly of fees charged by airports and air traffic control entities. During the year, these
fees were up $8.9 million (6.0%) compared with 2018. The increase resulted from higher capacity compared with 2018, in
particular from an increase in the number of flights on the domestic program during the winter.
Aircraft rent
The $19.3 million (15.5%) increase in aircraft rent for the year was attributable to the increase in the number of seasonal
aircraft and the expansion in our permanent fleet of leased aircraft, compared with 2018, combined with the weakening of
the Canadian dollar against the U.S. dollar.
Other airline costs
Other airline costs consist mainly of handling, crew, catering costs and other costs related to the airline. Other airline costs
were down $0.8 million (0.3%) for the year, compared with 2018. The decrease resulted from lower travel interruption costs,
partially offset by increased capacity compared with 2018.
Other
Other expenses were up $7.7 million (7.9%) during the year, compared with 2018. The increase is due to a service provider
whose bankruptcy resulted in losses for the Corporation for the year, as well as higher professional fees and pilot
training costs.
Share of net loss (income) of an associate and a joint venture
In 2018 and 2019, our share of net loss (income) of an associate and a joint venture represents our share of the net loss
(income) of Desarrollo Transimar, our hotel joint venture acquired in 2017. In 2017, our share of net income of an associate
and a joint venture mainly represented our share of net income of Ocean Hotels, which was sold on October 4, 2017. Our
share of net loss of a joint venture for the current fiscal year totalled $1.3 million compared with $0.1 million for 2018. The
increase in our share of the net loss was due to an increase in operating costs following the reopening of the Desarrollo
Transimar hotel complex, Marival Armony, in May 2019, whose expansion and renovation work was completed during the year.
Depreciation and amortization
Depreciation and amortization expense includes depreciation and amortization as well as impairment losses relating to
property, plant and equipment, intangible assets subject to amortization and deferred lease incentives. Depreciation and
amortization expense was up $5.0 million (8.4%) in fiscal 2019. This increase is due to leasehold improvements to aircraft
added to our fleet, capitalized maintenance on the Airbus A310s, and computer hardware and software.
Special items
Special items generally include restructuring charges and other significant unusual items. For the year ended
October 31, 2019, professional fees of $10.3 million and compensation expenses of $13.6 million were recorded in connection
with the transaction with Air Canada. The compensation expenses are mainly related to the stock-based compensation plans
which include a change of control clause and to adjustments related to stock-based compensation plan provisions
subsequent to the significant rise in the share price. Compensation expenses recorded as special items result from Air
Canada’s offer, which makes it likely that the change of control criteria included in some of the Corporation’s stock-based
compensation plans will be met, and also reduces the vesting period. The share closing price of $15.37 as at October 31, 2019
was used to calculate expenses related to the stock-based compensation plans, when applicable.
During the year ended October 31, 2018, the Corporation recognized restructuring expenses of $2.3 million related to
termination benefits. In addition, on June 5, 2019, the Corporation settled, without admission of liability, for an amount of
US$5.0 million [$6.7 million], a litigation whereby plaintiffs alleged misappropriation of confidential information and
solicitation of employees; this amount was recorded as a subsequent event in the consolidated statement of income for the
year ended October 31, 2018.
2019 Annual Report Transat A.T. Inc. | 20
Management’s Discussion and Analysis
OPERATING RESULTS
Given the above, we recorded an operating loss of $49.8 million (1.7%) for the year, compared with $50.6 million (1.8%) for
the previous year. Operating results by season are summarized as follows:
(in thousands of dollars)
Winter season
Revenues
Operating expenses
Operating income (loss)
Operating income (loss) (%)
2019
$
2018
(1)
Restated
$
Change
2017
2019
2018
$
%
%
1,544,979
1,610,636
(65,657)
(4.2)
1,515,543
1,562,251
(46,708)
(3.1)
1,573,642
1,639,374
(65,732)
(4.2)
1.9
3.1
(40.6)
(37.9)
4.4
2.9
508.6
491.4
(3.7)
(4.7)
28.9
26.2
(6.9)
0.5
(103.9)
(104.2)
Summer season
Revenues
Operating expenses
Operating income (loss)
Operating income (loss) (%)
1 The Corporation has restated its consolidated financial statements as at October 31, 2018. See Restatement section.
1,333,412
1,337,297
(3,885)
(0.3)
1,392,151
1,376,277
15,874
1.1
1,431,703
1,331,251
100,452
7.0
We reported an operating loss for the winter season amounting to $65.7 million (4.2%) compared with $46.7 million (3.1%) in
2018. The increase in our operating loss resulted primarily from higher fuel prices, combined with the weakening of the
Canadian dollar against the U.S. dollar and the additional costs incurred for the transition and optimization of the
Corporation’s fleet, which in total exceeded the increase in the average selling prices of packages.
During the summer season, operating income totalled $15.9 million (1.1%) compared with an operating loss of $3.9 million
(0.3%) for the previous year. The improvement in our operating income was driven by higher average selling prices and load
factors across all our programs, and growth in ancillary revenues. The increase in operating income was partially offset by
the costs associated with the transaction with Air Canada totalling $23.9 million and the increase in aircraft maintenance
costs.
For the winter season, we reported an adjusted operating loss of $34.7 million (2.2%), compared with $16.6 million (1.1%) in
2018. For the summer season, we recorded $72.7 million (5.2%) in adjusted operating income, compared with $33.8 million
(2.5%) in 2018. Overall, the Corporation reported $38.0 million (1.3%) in adjusted operating income for the year, compared
with $17.2 million (0.6%) in 2018.
OTHER EXPENSES AND REVENUES
Financing costs
Financing costs include interest on long-term debt and other interest, standby fees, as well as financial expenses. Financing
costs were down $0.5 million in 2019, compared with 2018.
Financing income
Financing income was up $3.4 million during the year compared with 2018, as a result of rising interest rates since last year.
Change in fair value of fuel-related derivatives and other derivatives
The change in fair value of fuel-related derivatives and other derivatives corresponds to the change in fair value, for the
period, of the portfolio of derivative financial instruments held and used by the Corporation to manage its exposure to
fluctuations in fuel prices and foreign exchange. For the year, the fair value of fuel-related derivatives and other derivatives
was down $8.7 million, compared with an increase in fair value of $8.4 million in 2018. The decrease was mainly due to the
maturing of favourable fuel- and currency-related derivatives, combined with the lower fair value of fuel-related derivatives.
2019 Annual Report Transat A.T. Inc. | 21
Management’s Discussion and Analysis
Gain on business disposals
On November 30, 2017, the Corporation completed the sale of its wholly owned subsidiary Jonview for a consideration of
$48.9 million. The Corporation recognized a gain on business disposal of $31.3 million in 2018. Following the sale of its
35% minority interest in Ocean Hotels on October 4, 2017, the Corporation recorded a downward adjustment to the gain on
business disposal of $0.2 million during the year ended October 31, 2018.
Foreign exchange loss (gain) on non-current monetary items
For the year, the Corporation reported a foreign exchange loss of $0.1 million on non-current monetary items, compared
with a foreign exchange gain of $0.3 million in 2018. The loss is mainly due to the unfavourable exchange rates on foreign
currency deposits.
INCOME TAXES
For the year ended October 31, 2019, income tax recovery amounted to $8.2 million compared with $4.9 million for the
previous year. Excluding the gain on business disposals and the share of net loss (income) of a joint venture, the effective tax
rate was 21.9% for the year ended October 31, 2019 and 20.5% for the previous year. The difference in tax rates between
fiscal 2019 and 2018 resulted mainly from higher non-deductible losses than in 2018.
NET INCOME (LOSS)
Considering the items discussed in the Consolidated operations section, net loss for the year ended October 31, 2019 was
$30.5 million compared with a net income of $10.0 million in 2018.
NET INCOME (LOSS) ATTRIBUTABLE TO SHAREHOLDERS AND ADJUSTED NET INCOME (LOSS)
Net loss attributable to shareholders amounted to $33.2 million or $0.88 per share (basic and diluted) compared with a net
income of $6.5 million or $0.17 per share (basic and diluted) for the previous year. The weighted average number of
outstanding shares used to compute basic per share amounts was 37,673,000 for fiscal 2019 and 37,394,000 for fiscal 2018
(37,673,000 and 37,562,000, respectively, for diluted per share amounts).
For the year ended October 31, 2019, our adjusted net loss amounted to $9.4 million ($0.25 per share) compared with
$24.0 million ($0.64 per share) in 2018.
2019 Annual Report Transat A.T. Inc. | 22
(in thousands of dollars,
except per share data)
Revenues
Aircraft rent
Operating income (loss)
Net income (loss)
Net income (loss)
attributable to
shareholders
Basic earnings (loss)
per share
Management’s Discussion and Analysis
SELECTED QUARTERLY FINANCIAL INFORMATION
The Corporation’s operations are seasonal in nature; consequently, interim operating results do not proportionately reflect
the operating results for a full year. Revenues increased compared with the corresponding quarters. The higher revenues
recorded during the winter season (Q1 and Q2) were mainly attributable to the increase in average selling prices across all
our programs, combined with a 2.8% rise in the number of travellers in the sun destinations program, our main program for
the period, resulting from our decision to increase our capacity in that program. The increase in revenues was offset by a
greater proportion of flight-only sales, which generate less revenues than packages. For the summer season (Q3 and Q4),
growth in revenues was driven primarily by higher average selling prices and load factors across all our programs, as well as
growth in ancillary revenues.
In terms of our operating results, for the winter season (Q1 and Q2), the increase in our operating loss resulted primarily from
the increase in fuel prices, combined with the weakening of the Canadian dollar against the U.S. dollar, and the additional
costs incurred for the transition and optimization of the Corporation’s fleet, which in total were higher than the increase in
the average selling prices of packages. For the summer season (Q3 and Q4), the improvement in our operating income was
driven by higher average selling prices and load factors across all our programs, and growth in ancillary revenues. The increase
in operating income was partially offset by the costs associated with the transaction with Air Canada and higher aircraft
maintenance costs. As a result, the following quarterly financial information may vary significantly from quarter to quarter.
Selected unaudited quarterly financial information
Q1-2018
Q2-2018
Q3-2018
(2)
Q4-2018
Q1-2019
Q2-2019
Q3-2019
Q4-2019
$
$
$
$
$
$
Restated
$
867,154
33,352
(3,179)
9,743
664,569
32,090
(10,736)
(4,693)
668,843
28,843
6,851
6,784
647,566
38,596
(52,555)
(48,659)
897,413
41,103
(13,102)
8,796
698,916
30,186
(7,617)
(10,730)
693,235
33,899
23,491
20,049
$
648,389
30,169
(43,528)
(1,840)
(3,195)
7,939
(5,046)
6,754
(49,646)
7,214
(11,043)
20,284
(0.09)
0.21
(0.13)
0.18
(1.32)
0.19
(0.29)
0.54
0.21
(0.09)
Diluted earnings (loss)
per share
Adjusted operating income
(loss)(1)
Adjusted net income (loss)(1)
Adjusted net income (loss)
per share(1)
1 See section 2 – Non-IFRS financial measures
2 The Corporation has restated its consolidated financial statements as at October 31, 2018. See Restatement section.
(36,029)
(37,728)
(28,759)
(32,196)
(5,040)
13,659
31,474
12,130
(0.96)
2,350
(0.87)
(0.01)
(1.32)
(0.13)
(0.13)
(456)
0.36
0.18
0.19
(0.29)
0.54
3,046
(6,312)
21,824
5,692
50,861
27,212
(0.17)
0.15
0.72
2019 Annual Report Transat A.T. Inc. | 23
Management’s Discussion and Analysis
FOURTH-QUARTER HIGHLIGHTS
For the fourth quarter, the Corporation generated $693.2 million in revenues, up $24.4 million (3.6%) from $668.8 million for
the corresponding period of 2018. This increase resulted from higher average selling prices across all our programs, as well
as growth in ancillary revenues. Our activities generated operating income of $23.5 million, compared with $6.9 million in
2018. The increase in operating income resulted primarily from higher average selling prices across all our programs, and
growth in ancillary revenues, partially offset by the costs associated with the transaction with Air Canada and higher aircraft
maintenance costs.
Net income amounted to $20.0 million in the fourth quarter, compared with $6.8 million in 2018. Net income attributable to
shareholders amounted to $20.3 million or $0.54 per share (basic and diluted) compared with $6.8 million or $0.18 per share
(basic and diluted) in 2018.
For the fourth quarter, our adjusted net income amounted to $27.2 million ($0.72 per share) compared with $13.7 million
($0.36 per share) in 2018.
9. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
As at October 31, 2019, cash and cash equivalents totalled $564.8 million, compared with $593.7 million as at
October 31, 2018. Cash and cash equivalents in trust or otherwise reserved amounted to $352.8 million as at the end of
fiscal 2019, compared with $338.9 million in 2018. The Corporation’s statement of financial position reflected $208.9 million
in working capital, for a ratio of 1.23, compared with $287.5 million and a ratio of 1.33 as at October 31, 2018.
Total assets increased by $18.1 million (1.2%) from $1,566.8 million as at October 31, 2018 to $1,584.9 million as at
October 31, 2019. This increase is explained in the financial position table provided below. Equity decreased by $36.9 million,
from $571.6 million as at October 31, 2018 to $534.8 million as at October 31, 2019. This decrease resulted mainly from a
$33.2 million net loss attributable to shareholders, combined with an $11.1 million unrealized loss on cash flow hedges,
partially offset by a $1.5 million foreign exchange gain on the translation of the financial statements of foreign subsidiaries.
2019 Annual Report Transat A.T. Inc. | 24
Management’s Discussion and Analysis
CONSOLIDATED FINANCIAL POSITION
October 31, October 31,
2019
2018 Difference Main reasons for significant differences
Restated
(1)
$
$
$
564,844
352,771
593,654
338,919
(28,810)
13,852
See the Cash flows section
Increase in business volume
Assets
Cash and cash equivalents
Cash and cash equivalents in trust or
otherwise reserved
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Deposits
Deferred tax assets
137,449
139,979
(2,530)
16,523
15,847
83,822
58,991
27,209
26,505
14,464
68,890
61,992
14,954
(9,982)
1,383
14,932
(3,001)
12,255
Property, plant and equipment
235,161
201,478
33,683
Intangible assets
36,852
42,689
(5,837)
Derivative financial instruments
4,870
20,497
(15,627)
Investments
Other assets
Liabilities
Trade and other payables
16,533
34,055
16,084
26,685
449
7,370
315,395
320,732
(5,337)
Provision for overhaul of leased aircraft
Income taxes payable
Derivative financial instruments
58,248
4,244
12,081
Customer deposits and deferred revenues
Other liabilities
Deferred tax liabilities
561,404
97,498
1,274
57,228
1,117
3,445
517,352
92,025
3,252
1,020
3,127
8,636
44,052
5,473
(1,978)
Equity
Share capital
221,012
219,684
1,328
Share-based payment reserve
15,948
18,017
(2,069)
Retained earnings
314,325
340,766
(26,441)
Unrealized gain on cash flow hedges
(9,176)
1,971
(11,147)
Cumulative exchange differences
(7,326)
(8,799)
1,473
Collection of receivables, partially offset by the
increase in cash security deposits receivable
from lessors due to aircraft maintenance
Collection of income taxes recoverable
Increase in fuel inventory
Increase in advances paid to hotels
Decrease in deposits to hotels
Increase in deferred taxes related to derivative
financial instruments and subsidiaries'
deductible losses
Acquisition of a parcel of land in Mexico and a
spare A321neo LR engine, partially offset by
amortization
Amortization for the year, partially offset by
additions
Maturing of foreign exchange derivatives and fuel
related derivatives during the year
No significant difference
Increase in deferred rent
Decrease in non-controlling interest, partially
offset by the increase in salaries payable
Increase in the number of leased aircraft
Taxable income of subsidiaries
Unfavourable change in fuel prices related to
contracted derivatives
Increase in business volume
Increase in the defined benefit obligation
Increase in non-capital losses carried forward
Shares issued from treasury and exercise of
options
Reclassification of contributed surplus related to
PSUs, partially offset by the share-based
payment expense
Net loss, partially offset by the variance of the
fair value of liabilities related to non-controlling
interest
Net loss on foreign exchange derivatives
designated in cash flow hedges
Foreign exchange gain on translation of financial
statements of foreign subsidiaries
1 The Corporation has restated its consolidated financial statements as at October 31, 2018. See Restatement section.
2019 Annual Report Transat A.T. Inc. | 25
Management’s Discussion and Analysis
CASH FLOWS
(in thousands of dollars)
Cash flows related to operating activities
Cash flows related to investing activities
Cash flows related to financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents related to
continuing operations
Operating activities
2019
$
64,075
(92,123)
(1,703)
941
2018
$
68,804
(93,644)
(430)
(982)
2017
$
161,487
97,901
(3,596)
450
Change
2019
%
(6.9)
1.6
(296.0)
195.8
2018
%
(57.4)
(195.7)
88.0
(318.2)
(28,810)
(26,252)
256,242
(9.7)
(110.2)
Operating activities generated $64.1 million in cash flows, compared with $68.8 million in 2018. The decrease resulted from
a $15.9 million decrease in net change in other assets and liabilities related to operations and from an $8.3 million decrease
in net change in the provision for overhaul of leased aircraft. The decrease was offset by a $16.6 million increase in the net
change in non-cash working capital balances related to operations and a $2.9 million increase in net income before operating
items not involving an outlay (receipt) of cash.
Adoption of IFRS 15 has led to a change in how the balance of Cash and cash equivalents in trust or otherwise reserved is
calculated from November 1, 2018 onwards. The impact of this change is an increase of $14.4 million in the balance of Cash
and cash equivalents in trust or otherwise reserved as at October 31, 2019 and an equivalent decrease in the balance of Cash
and cash equivalents.
We expect to continue to generate positive cash flows from our operating activities in 2020.
Investing activities
Cash flows used in investing activities totalled $92.1 million for the year, down $1.5 million compared with 2018. Additions to
property, property, plant and equipment and intangible assets were down $26.8 million in 2019 from last year. In 2019, the
Corporation acquired a second parcel of land in Puerto Morelos, Mexico, adjacent to the first parcel acquired in 2018,
for $15.8 million, and also made acquisitions related to fleet expansion, including the purchase of an Airbus A321neo LR
replacement engine for $16.8 million. In 2018, the Corporation acquired land for $59.9 million. The increase in cash due to
lower acquisitions of property, plant and equipment and intangible assets was partially offset by the fact that in 2018,
following the sale of our Jonview subsidiary, the Corporation had received a consideration of $28.6 million, net of cash
disposed of.
In 2020, additions to property, plant and equipment and intangible assets could amount to approximately $70.0 million,
excluding any land and hotel acquisitions related to the development of our hotel division.
Financing activities
Cash flows used in financing activities amounted to $1.7 million compared with $0.4 million in 2018. The higher use of cash
flows than in 2018 resulted mainly from higher proceeds from share issuance in 2018 than in 2019.
2019 Annual Report Transat A.T. Inc. | 26
Management’s Discussion and Analysis
FINANCING
As at December 11, 2019, the Corporation had several types of funding, consisting primarily of a revolving term credit facility
and lines of credit for issuing letters of credit.
The Corporation has a $50 million revolving credit facility agreement for operating purposes. Under the agreement, which
expires in 2022, the Corporation may increase the credit limit to $100 million, subject to lender approval. The agreement
may be extended for a year at each anniversary date subject to lender approval and the balance becomes immediately payable
in the event of a change in control. Under the terms of the agreement, funds may be drawn down by way of bankers’
acceptances or bank loans, denominated in Canadian dollars, U.S. dollars, euros or pounds sterling. The agreement is secured
by a first movable hypothec on the universality of assets, present and future, of the Corporation’s Canadian subsidiaries
subject to certain exceptions and is further secured by the pledging of certain marketable securities of its main European
subsidiaries. The credit facility bears interest at the bankers’ acceptance rate, the financial institution’s prime rate or LIBOR,
plus a premium. The terms of the agreements require the Corporation to comply with certain financial ratios and conditions.
As at October 31, 2019, all financial ratios and conditions were met and the credit facility was undrawn.
Off-balance sheet arrangements
In the normal course of business, Transat enters into arrangements and incurs obligations that will impact the Corporation’s
future operations and liquidity, some of which are reflected as liabilities in the consolidated financial statements and others
in the notes to the financial statements. The Corporation did not report any obligations in the statement of financial position
as at October 31, 2019 and October 31, 2018.
Obligations that are not reported as liabilities are considered off-balance sheet arrangements. These contractual
arrangements are entered into with non-consolidated entities and consist of the following:
Guarantees (see notes 17 and 26 to the audited consolidated financial statements)
Operating leases (see note 25 to the audited consolidated financial statements)
Purchase obligations (see note 25 to the audited consolidated financial statements)
Off-balance sheet arrangements that can be estimated, excluding agreements with suppliers and other obligations, amounted
to approximately $2,210.3 million as at October 31, 2019 ($2,506.9 million as at October 31, 2018) and are detailed as follows:
OFF-BALANCE SHEET ARRANGEMENTS
(in thousands of dollars)
Guarantees
Irrevocable letters of credit
Collateral security contracts
Operating leases
Obligations under operating leases
Agreements with suppliers
2019
$
2018
$
25,375
472
31,221
419
2,184,471
2,210,318
56,830
2,475,276
2,506,916
79,848
2,267,148
2,586,764
In the normal course of business, guarantees are required in the travel industry to provide indemnifications and guarantees
to counterparties in transactions such as operating leases, irrevocable letters of credit and collateral security contracts.
Historically, Transat has not made any significant payments under such guarantees. Operating leases are entered into to
enable the Corporation to lease certain items rather than acquire them.
2019 Annual Report Transat A.T. Inc. | 27
Management’s Discussion and Analysis
The Corporation has a $75.0 million annually renewable revolving credit facility for issuing letters of credit in respect of which
the Corporation must pledge cash totalling 100% of the amount of the issued letters of credit as collateral security. As at
October 31, 2019, $55.8 million had been drawn down under the facility, of which $51.2 million was to secure obligations
under senior executive defined benefit pension agreements; this irrevocable letter of credit is held by a third-party trustee.
In the event of a change of control, the irrevocable letter of credit issued to secure obligations under senior executive defined
benefit pension agreements will be drawn down.
The Corporation also has a guarantee facility renewable in 2020. Under this agreement, the Corporation may issue collateral
security contracts with a maximum three-year term and for a total amount of $50.0 million. This facility allows the
Corporation, among other things, to issue collateral security contracts to some suppliers to whom letters of credit were
previously issued and for which the Corporation had to pledge cash for the total amount of the outstanding letters of credit.
As at October 31, 2019, $24.4 million was drawn down under this credit facility for issuing letters of credit to some of our
service providers.
For its U.K. operations, the Corporation has a bank line of credit for issuing letters of credit secured by deposits of
£2.7 million [$4.7 million], which has been fully drawn down.
As at October 31, 2019, the off-balance sheet arrangements, excluding agreements with suppliers and other obligations, had
decreased by $296.6 million compared with October 31, 2018. This decrease resulted mainly from repayments made during
the year, combined with a decrease in estimated future rent payments for the Airbus A321neo LRs to be added to our fleet
by 2022.
We believe that the Corporation will be able to meet its obligations with cash on hand, cash flows from operations and
drawdowns under existing credit facilities.
CONTRACTUAL OBLIGATIONS BY YEAR
Years ending October 31
Contractual obligations
Long-term debt
Leases (aircraft)
Leases (other)
Agreements with suppliers
and other obligations
Debt levels
2020
$
2021
$
2022
$
2023
$
2024
$
2025 and
beyond
$
Total
$
—
190,291
26,919
—
210,683
22,452
—
209,404
15,927
—
199,243
9,681
—
185,674
7,313
—
1,066,406
40,478
—
2,061,701
122,770
42,821
260,031
5,272
238,407
5,356
230,687
5,327
214,251
5,438
198,425
39,602
1,146,486
103,816
2,288,287
The Corporation did not report any debt on its statement of financial position.
The Corporation’s total debt increased by $96.7 million to $718.9 million compared with 2018, which was mainly due to the
addition of aircraft to our fleet during the past twelve months.
Total net debt increased by $125.5 million, from $28.6 million as at October 31, 2018 to $154.1 million as at October 31, 2019.
The increase in total net debt resulted from the increase in total debt, combined with lower cash and cash equivalent balances
than as at October 31, 2018.
2019 Annual Report Transat A.T. Inc. | 28
Management’s Discussion and Analysis
Outstanding shares
As at October 31, 2019, the Corporation had three authorized classes of shares: an unlimited number of Class A Variable
Voting Shares, an unlimited number of Class B Voting Shares and an unlimited number of preferred shares. The preferred
shares are non-voting and issuable in series, with each series including the number of shares, designation, rights, privileges,
restrictions and conditions as determined by the Board of Directors.
As at December 6, 2019, there were 37,747,090 total voting shares outstanding.
Class A Variable Voting Shares and Class B Voting Shares of the Corporation are traded on the Toronto Stock Exchange under
a single ticker symbol: “TRZ.”
Stock options
As at December 6, 2019, there were a total of 1,746,570 stock options outstanding, 1,469,592 of which were exercisable.
10. OTHER
FLEET
Air Transat’s fleet currently consists of twenty Airbus A330s (332, 345 or 375 seats), six Airbus A310s (250 seats), five Boeing
737-800s (189 seats), four Airbus A321ceos (199 seats), two of which were commissioned in the second quarter of 2019, and
two Airbus A321neo LRs (199 seats).
During winter 2019, the Corporation also had seasonal rentals for nine Boeing 737-800s (189 seats), eight Airbus A321ceos
(190 seats), three Boeing 737-700s (149 seats) and two Airbus A320s (199 seats).
During the year ended October 31, 2019, the Corporation took delivery of its first two Airbus A321neo LRs out of 17 new
aircraft to be added to its fleet by 2022.
2019 Annual Report Transat A.T. Inc. | 29
Management’s Discussion and Analysis
11. ACCOUNTING
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements requires management to make estimates and judgments about the
future. We periodically review these estimates, which are based on historical experience, changes in the business
environment and other factors, including expectations of future events, that management considers reasonable under the
circumstances. Our estimates involve judgments we make based on the information available to us. However, accounting
estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected
in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year
are described below. The Corporation based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. However, existing circumstances and assumptions about future developments may
change due to market events or to circumstances beyond the Corporation’s control. Such changes are reflected in the
assumptions when they occur.
This discussion addresses only those estimates that we consider important based on the degree of uncertainty and the
likelihood of a material impact if we had used different estimates. There are many other areas in which we use estimates
about uncertain matters.
Depreciation and amortization and impairment of property, plant and equipment, and
intangible assets
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS WITH FINITE LIVES
Property, plant and equipment reported in the statement of financial position represent material amounts based on historical
costs. Property, plant and equipment and intangible assets with finite lives are reviewed for impairment annually or whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Property, plant and equipment are depreciated over their estimated useful lives taking into account their residual value.
Aircraft and aircraft components account for a major class of property, plant and equipment. Depreciation expense depends
on several assumptions including the period over which the aircraft will be used, the fleet renewal schedule and the estimate
of the residual value of aircraft and aircraft components at the time of their anticipated disposal. The amortization period is
determined based on the fleet renewal schedule. The estimate of the residual value of aircraft and aircraft components at
the time of their anticipated disposal is supported by periodically reviewed external valuations. Our fleet renewal schedule
and the realizable value of our aircraft obtainable upon fleet renewal depend on numerous factors such as supply and demand
for aircraft at the scheduled fleet renewal date. Changes in estimated useful life and residual value of aircraft could have a
significant impact on depreciation expense. Generally speaking, the main assumptions would have to be reduced by 10% to
produce a loss in value and have a material impact on our results and financial position. However, reducing these assumptions
would not result in cash outflows and would not affect our cash flows.
No event or change in situation arising during the year ended October 31, 2019 could have required an impairment of
property, plant and equipment and intangible assets with finite lives.
2019 Annual Report Transat A.T. Inc. | 30
Management’s Discussion and Analysis
Fair value of derivative financial instruments
The fair value of derivative financial instruments is the amount for which the instrument could be exchanged between
knowledgeable, willing parties in an arm’s length transaction. The Corporation determines the fair value of its derivative
financial instruments using the purchase or selling price, as appropriate, in the most advantageous active market to which
the Corporation has immediate access. The Corporation also takes into account its own credit risk and the credit risk of the
counterparty in determining fair value for its derivative financial instruments based on whether they are financial assets or
financial liabilities. When the market for a derivative financial instrument is not active, the Corporation determines the fair
value by applying valuation techniques, such as using available information on market transactions involving other instruments
that are substantially the same, discounted cash flow analysis or other techniques, where appropriate. The Corporation
ensures, to the extent practicable, that its valuation technique incorporates all factors that market participants would
consider in setting a price and that it is consistent with accepted economic methods for pricing financial instruments,
including the credit risk of the party involved.
Provision for overhaul of leased aircraft
Under aircraft and engine operating leases, the Corporation is required to maintain the aircraft and engines in serviceable
condition and to follow the maintenance plan. The Corporation accounts for its leased aircraft and engine maintenance
obligation based on utilization until the next maintenance activity. The obligation is adjusted to reflect any change in the
related maintenance expenses anticipated. Depending on the type of maintenance, utilization is determined based on the
cycles, logged flight time or time between overhauls. The estimates used to determine the provision for overhaul of leased
aircraft are based on historical experience, historical costs and repairs, information from external suppliers, forecasted
aircraft utilization, planned renewal of the aircraft fleet, leased aircraft return conditions, and other facts and reasonable
assumptions in the circumstances. Generally speaking, the main assumptions used to calculate this provision would have to
be reduced by 2% to 4% to result in additional expenses that could have a material impact on our results, financial position
and cash flows.
Employee future benefits
The Corporation offers defined benefit pension arrangements to certain senior executives. The Corporation recognizes the
pension expense of these employees on an annual basis based on actuarial calculations using the projected unit credit
method. The calculation of the pension expense is based on management’s best estimate assumptions regarding the growth
rate of eligible earnings and the retirement age of employees. Plan obligations are discounted using current market interest
rates. Given that various assumptions are used in determining the cost and obligations associated with employee future
benefits, the actuarial valuation process involves some inherent measurement uncertainty. Actual results will differ from
estimated results based on assumptions.
A 0.25 percentage point increase in the actuarial assumptions below would have the following impacts, all other actuarial
assumptions remaining the same:
Increase (decrease)
Discount rate
Rate of increase in eligible earnings
Cost of retirement
benefits for the year
ended October 31, 2019
$
(1)
13
Retirement benefit
obligations as at
October 31, 2019
$
(1,406)
80
2019 Annual Report Transat A.T. Inc. | 31
Management’s Discussion and Analysis
Taxes
From time to time, the Corporation is subject to audits by tax authorities that give rise to questions regarding the tax
treatment of certain transactions. Certain of these matters could entail significant costs that will remain uncertain until one
or more events occur or fail to occur. Although the outcome of such matters is not predictable with assurance, the tax claims
and risks for which there is a probable unfavourable outcome are recognized by the Corporation using the best possible
estimates of the amount of the loss. The tax deductibility of losses reported by the Corporation in previous fiscal years with
regard to investments in ABCP was challenged by tax authorities and notices of assessment in this regard were received
during the year ended October 31, 2015. No provisions are made in connection with this issue, which could result in expenses
of approximately $16.2 million, as the Corporation intends to defend itself vigorously with respect thereto and firmly believes
it has sufficient facts and arguments to obtain a favourable final outcome. However, this resulted in outflows of $15.1 million
during the year ended October 31, 2016. As there was no change in circumstances during fiscal 2019, this amount was
recognized as income taxes receivable as at October 31, 2019.
FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation is exposed to credit and counterparty risk, liquidity risk and market risk
arising from changes in certain foreign exchange rates, changes in fuel prices and changes in interest rates. The Corporation
manages these risk exposures on an ongoing basis. In order to limit the effects of changes in foreign exchange rates, fuel
prices and interest rates on its revenues, expenses and cash flows, the Corporation can avail itself of various derivative
financial instruments. The Corporation’s management is responsible for determining the acceptable level of risk and only
uses derivative financial instruments to manage existing or anticipated risks, commitments or obligations based on its
past experience.
Foreign exchange risk management
The Corporation is exposed to foreign exchange risk, primarily as a result of its many arrangements with foreign-based
suppliers, aircraft and engine leases, fuel purchases, long-term debt and revenues in foreign currencies, and fluctuations in
exchange rates mainly with respect to the U.S. dollar, the euro and the pound sterling against the Canadian dollar and the
euro, as the case may be. Approximately 74% of the Corporation’s costs are incurred in a currency other than the
measurement currency of the reporting unit incurring the costs, whereas approximately 19% of revenues are earned in a
currency other than the measurement currency of the reporting unit making the sale. In accordance with its foreign currency
risk management policy and to safeguard the value of anticipated commitments and transactions, the Corporation enters
into foreign exchange forward contracts, expiring in generally less than 18 months, for the purchase and/or sale of foreign
currencies based on anticipated foreign exchange rate trends.
The Corporation documents certain foreign exchange derivatives as hedging instruments and regularly demonstrates that
these instruments are sufficiently effective to continue using hedge accounting. These foreign exchange derivatives are
designated as cash flow hedges.
All derivative financial instruments are recorded at fair value in the consolidated statement of financial position. For the
derivative financial instruments designated as cash flow hedges, changes in value of the effective portion are recognized in
Other comprehensive income in the consolidated statement of comprehensive income. Any ineffectiveness within a cash
flow hedge is recognized through profit or loss as it arises in the account Change in fair value of fuel-related derivatives and
other derivatives. Should the hedging of a cash flow hedge relationship become ineffective, previously unrealized gains and
losses remain within Unrealized gain (loss) on cash flow hedges until the hedged item is settled and future changes in value
of the derivative are recognized in income prospectively. The change in value of the effective portion of a cash flow hedge
remains in Accumulated other comprehensive income (loss) until the related hedged item is settled, at which time amounts
recognized in Unrealized gain (loss) on cash flow hedges are reclassified to the same income statement account in which the
hedged item is recognized.
2019 Annual Report Transat A.T. Inc. | 32
Management’s Discussion and Analysis
Management of fuel price risk
The Corporation is particularly exposed to fluctuations in fuel prices. Due to competitive pressures in the industry, there can
be no assurance that the Corporation would be able to pass along any increase in fuel prices to its customers by increasing
prices, or that any eventual price increase would fully offset higher fuel costs, which could in turn adversely impact its
business, financial position or operating results. To mitigate fuel price fluctuations, the Corporation has implemented a fuel
price risk management policy that authorizes using foreign exchange forward contracts, and other types of derivative financial
instruments, expiring in generally less than 18 months.
The derivative financial instruments used for fuel purchases are measured at fair value at the end of each period, and the
unrealized gains or losses arising from remeasurement are recorded and reported under Change in fair value of fuel-related
derivatives and other derivatives in the consolidated statement of income (loss). When realized, at maturity of fuel-related
derivative financial instruments, any gains or losses are reclassified to Aircraft fuel.
Credit and counterparty risk
Credit risk is primarily attributable to the potential inability of customers, service providers, aircraft and engine lessors and
financial institutions, including the other counterparties to cash equivalents and derivative financial instruments, to discharge
their obligations.
Trade accounts receivable included under Trade and other receivables in the statement of financial position totalled
$25.7 million as at October 31, 2019. Trade accounts receivable consist of a large number of customers, including travel
agencies. Trade accounts receivable generally result from the sale of vacation packages to individuals through travel agencies
and the sale of seats to tour operators dispersed over a wide geographic area. No customer represented more than 10% of
total accounts receivable. As at October 31, 2019, approximately 7% of accounts receivable were over 90 days past due,
whereas approximately 90% were current, that is, under 30 days. Historically, the Corporation has not incurred any
significant losses in respect of its trade accounts receivable.
Pursuant to certain agreements entered into with its service providers consisting primarily of hotel operators, the
Corporation pays deposits to capitalize on special benefits, including pricing, exclusive access and room allotments. As at
October 31, 2019, these deposits totalled $20.6 million and are offset by purchases of person-nights at these hotels. Risk
arises from the fact that these hotels might not be able to honour their obligations to provide the agreed number of person-
nights. The Corporation strives to minimize its exposure by limiting deposits to recognized and reputable hotel operators in
its active markets. These deposits are spread across a large number of hotels and, historically, the Corporation has not been
required to write off a considerable amount for its deposits with suppliers.
Under the terms of its aircraft and engine leases, the Corporation pays deposits when aircraft and engines are commissioned,
particularly as collateral for remaining lease payments. These deposits totalled $38.4 million as at October 31, 2019 and will
be returned on lease expiry. The Corporation is also required to pay cash security deposits to lessors over the lease term to
guarantee the serviceable condition of aircraft. These cash security deposits with lessors are generally returned to the
Corporation following receipt of documented proof that the related maintenance has been performed by the Corporation.
As at October 31, 2019, the cash security deposits with lessors that had been claimed totalled $71.6 million and were included
under Trade and other receivables. Historically, the Corporation has not written off any significant amount of deposits and
claims for cash security deposits with aircraft and engine lessors.
For financial institutions including the various counterparties, the maximum credit risk as at October 31, 2019 related to cash
and cash equivalents, including cash and cash equivalents in trust or otherwise reserved and derivative financial instruments
accounted for in assets. These assets are held or traded with a limited number of financial institutions and other
counterparties. The Corporation is exposed to the risk that the financial institutions and other counterparties with which it
holds securities or enters into agreements could be unable to honour their obligations. The Corporation minimizes risk by
entering into agreements only with large financial institutions and other large counterparties with appropriate credit ratings.
The Corporation’s policy is to invest solely in products that are rated R1-Mid or better (by Dominion Bond Rating
Service [“DBRS”]), A1 (by Standard & Poor’s) or P1 (by Moody’s) and rated by at least two rating firms. Exposure to these risks
is closely monitored and maintained within the limits set out in the Corporation’s various policies. The Corporation revises
these policies on a regular basis.
The Corporation does not believe it is exposed to a significant concentration of credit risk as at October 31, 2019.
2019 Annual Report Transat A.T. Inc. | 33
Management’s Discussion and Analysis
Liquidity risk
The Corporation is exposed to the risk of being unable to honour its financial commitments by the deadlines set out under
the terms of such commitments and at a reasonable price. The Corporation has a Treasury Department in charge, among
other things, of ensuring sound management of available cash resources, financing and compliance with deadlines within the
Corporation’s scope of consolidation. With senior management’s oversight, the Treasury Department manages the
Corporation’s cash resources based on financial forecasts and anticipated cash flows. The Corporation has implemented an
investment policy designed to safeguard its capital and instrument liquidity and generate a reasonable return. The policy sets
out the types of allowed investment instruments, their concentration, acceptable credit rating and maximum maturity.
Interest rate risk
The Corporation is exposed to interest rate fluctuations, primarily due to its variable-rate credit facility. The Corporation
manages its interest rate exposure and could potentially enter into swap agreements consisting in exchanging variable rates
for fixed rates.
Furthermore, interest rate fluctuations could have an effect on the Corporation’s interest income derived from its cash and
cash equivalents.
CHANGES IN ACCOUNTING POLICIES
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments, addresses the classification and measurement of financial assets and financial liabilities and
introduces a forward-looking expected loss impairment model as well as a substantially reformed approach to hedge
accounting. IFRS 9 supersedes IAS 39, Financial Instruments: Recognition and Measurement. The Corporation applies the
new hedge accounting model and foreign exchange risk management disclosure requirements with prospective application
as of November 1, 2018. For hedging relationships including options that existed as at November 1, 2017 or those that have
been designated since then, the Corporation accounts for the changes related to the time value of the options
retrospectively, with restatement of comparative figures. The accounting policies and the main changes related to the
adoption of IFRS 9 are explained in note 4 to the consolidated financial statements for the year ended October 31, 2019.
IFRS 15, Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers, supersedes IAS 11, Construction Contracts, IAS 18, Revenue, and various
interpretations regarding revenue. IFRS 15 specifies the steps and timing of revenue recognition for issuers as well as
requiring them to provide relevant and more comprehensive disclosures. The core principle of IFRS 15 is that an entity should
recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that
reflects the expected consideration receivable in exchange for those goods or services. IFRS 15 was applied retrospectively
on November 1, 2018 with an adjustment to the opening consolidated statement of financial position as at November 1, 2017
and the consolidated statement of income for the year ended on October 31, 2018. The accounting policies and the main
changes related to the adoption of IFRS 15 are explained in note 4 to the consolidated financial statements for the year ended
October 31, 2019.
2019 Annual Report Transat A.T. Inc. | 34
Management’s Discussion and Analysis
FUTURE CHANGES IN ACCOUNTING POLICIES
Standards issued but not yet effective are discussed below. The Corporation has not early adopted these new standards.
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16, Leases, which supersedes IAS 17, Leases. IFRS 16 introduces a single lessee
accounting model under which most of lease-related assets and liabilities are recognized in the statement of financial
position. For the lessor, substantially all the current accounting requirements remain unchanged.
Considering that the Corporation is committed under numerous operating leases in accordance with IAS 17, the adoption of
IFRS 16 will have a significant impact on its consolidated financial statements. The Corporation will be required to recognize
a right-of-use asset and a liability at the present value of future lease payments. Amortization of the right-of-use asset and
interest expense on the lease obligation will replace rent expense related to operating leases.
The application of IFRS 16 is mandatory and will be effective for the Corporation’s annual reporting period beginning on
November 1, 2019. The Corporation will apply the retrospective method with restatement for each prior reporting period
presented. The Corporation has elected to apply the permitted capitalization exemptions for short-term leases and leases
of low value assets.
The Corporation has completed the scoping exercise and lease review and is currently assessing the impact of the application
of IFRS 16 on the consolidated financial statements as at transition and for each quarter of the year ended October 31, 2019.
We have substantially concluded on the accounting policies described below and continue to assess their impact on the
consolidated financial statements, business processes and internal controls.
The accounting policies and major changes related to the adoption of IFRS 16 are explained in note 5 to the consolidated
financial statements for the year ended October 31, 2019.
IFRIC 23, Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments, which clarifies how to apply the recognition
and measurement requirements in IAS 12, Income Taxes, when there is uncertainty over income tax treatments. IFRIC 23 sets
out the circumstances in which uncertain tax treatments should be treated separately or together, and the assumptions to
be considered in assessing an uncertain tax treatment and determining whether it is probable that a taxation authority will
accept the treatment. Application of IFRIC 23 will be effective for the Corporation’s annual reporting period beginning on
November 1, 2019. The Corporation is currently assessing the impact of the adoption of this new IFRIC interpretation on its
consolidated financial statements.
2019 Annual Report Transat A.T. Inc. | 35
Management’s Discussion and Analysis
12. RISKS AND UNCERTAINTIES
This section provides an overview of the general risks as well as specific risks to which Transat and its subsidiaries are
exposed, and which are likely to have a significant impact on the Corporation’s financial position, operating results and
activities. It does not purport to cover all contingencies or to describe all factors that are likely to affect the Corporation or
its activities. Moreover, the risks and uncertainties described may or may not materialize, and may develop differently or have
consequences other than those contemplated in this MD&A. Additional risks and uncertainties not currently known to the
Corporation or that are currently considered immaterial could also materialize in the future and adversely affect
the Corporation.
RISK GOVERNANCE
To improve its risk management capacities, the Corporation has set up a framework for identifying, assessing and managing
the different risks applicable to its industry and to companies in general. This framework is based on the following principles:
Promote a culture of risk awareness at the head office and in subsidiaries; and
Integrate risk management into strategic, financial and operating objectives.
For each risk, an owner has been designated as accountable for designing and implementing measures to mitigate the
consequences of risks for which he or she is responsible, and/or limit the likelihood of these risks materializing. This owner
is the first line of defence from a risk management standpoint. The Corporation’s support services, namely the Finance, Legal
Affairs, IT Security and Human Resources functions, constitute a second line of defence through their involvement in the
design and operation of the complementary risk mitigating actions. Lastly, the Internal Audit department is the third line of
defence to provide independent assurance on the effectiveness and efficiency of controls over these mitigating actions.
In addition, the Corporation has adopted an ongoing risk management process that includes a quarterly assessment of risk
exposures for the Corporation and its subsidiaries, under the oversight of the Audit Committee (financial risks), the Human
Resources and Compensation Committee (human resource risks) and the Risk Management and Corporate Governance
Committee (strategic and operational risks).
Managing these risks is also shared between members of the Corporation’s management and the members of the Board of
Directors using consistent mapping and language in order to eliminate a silo approach to risk management. These risks are
thus classified to facilitate an overall understanding of risks to which the Corporation is exposed.
KEY RISKS
An overview of each of the key risk categories is provided below, along with a description of the main measures to reduce
the occurrence and mitigate, where possible, the potential impact of these risks on the Corporation’s business objectives.
Although insurance coverage is purchased for some of these risks, and operational mitigating actions are in place, there can
be no assurance that these actions will effectively reduce risks that could have an adverse impact on the Corporation’s
financial position, reputation and/or ability to achieve its strategic and operational objectives.
2019 Annual Report Transat A.T. Inc. | 36
Management’s Discussion and Analysis
TRANSACTION RISKS
On June 27, 2019, Transat concluded a definitive Arrangement Agreement that provides for Air Canada’s acquisition of all
issued and outstanding shares of Transat, which was amended on August 11, 2019 by the conclusion of an amending
agreement. This transaction involves many risks which have been presented in the Arrangement Circular, which is available
at www.sedar.com.
The main risks are as follows:
Conditions precedent and required approvals
There can be no certainty, nor can Transat provide any assurance, that all conditions precedent to the arrangement will be
satisfied or waived, nor can there be any certainty of the timing of their satisfaction or waiver. Failure to complete the
arrangement could have a material adverse effect on the trading price of the voting shares.
The completion of the arrangement is subject to a number of conditions precedent, some of which are outside Transat’s
control, including receipt of the key regulatory approvals.
Concerning the key regulatory approvals, due to the nature of the business operated by the parties, the Arrangement
Agreement and the fact that they are both active in certain markets, the arrangement is subject to careful review by the
competition and transportation regulatory authorities who may seek certain remedies in connection with the key regulatory
approvals. However, the decision to propose or agree to any remedies remains with Air Canada and will depend on the impact
such remedies may have on the financial position, operations and business prospects of Air Canada. If Air Canada is not able
to come to an agreement with the regulatory authorities and obtain the key regulatory approvals before June 27, 2020 (as
such date may be extended as permitted under the Arrangement Agreement), Air Canada or the Corporation may terminate
the Arrangement Agreement with the payment by Air Canada of the reverse termination fee (provided the other conditions
required for such payment are otherwise met), as is more fully described under “Arrangement Agreement - Termination Fees
– Purchaser Reverse Termination Fee” in the Arrangement Circular.
Restrictive covenants of the Corporation until closing of the arrangement and uncertainty may
adversely affect the Corporation’s business
From the date of the Arrangement Agreement until closing of the arrangement, the Corporation has agreed to certain
restrictive covenants under the Arrangement Agreement, particularly regarding investments relating to its hotel strategy.
These restrictions may prevent the Corporation from pursuing attractive business opportunities that may arise prior to the
completion of the arrangement, and will delay the advancement of the Corporation’s hotel strategy. Moreover, the
uncertainty regarding the satisfaction of all required conditions, including obtaining the key regulatory approvals, may bring
clients and suppliers to delay or defer decisions concerning their business with the Corporation which may adversely affect
the business and operations of the Corporation, regardless of whether the arrangement is ultimately completed. Similarly,
this uncertainty may adversely affect the Corporation’s ability to attract or retain key personnel. Given the length of time
anticipated before the key regulatory approvals are obtained, and the risks that such approvals may not be obtained, a
termination of the Arrangement Agreement could materially and adversely affect the business of the Corporation and its
ability to carry out is strategic plan as was contemplated prior to signing the Arrangement Agreement.
Termination in certain circumstances and termination fee
Each of Transat and Air Canada has the right, in certain circumstances, in addition to termination rights relating to the failure
to satisfy the conditions of closing, to terminate the Arrangement Agreement. Accordingly, there can be no certainty, nor
can Transat provide any assurance, that the Arrangement Agreement will not be terminated by either of Transat or Air Canada
prior to the completion of the arrangement. Transat’s business, financial condition or results of operations could also be
subject to various material adverse consequences, including that Transat may remain liable for significant costs relating to
the arrangement including, among others, financial advisory, legal, accounting and printing expenses. Under the Arrangement
Agreement, Transat is required to pay to Air Canada the termination fee in the event that the Arrangement Agreement is
terminated following the occurrence of a termination fee event and Air Canada is required to pay to Transat the reverse
termination fee in the event that the Arrangement Agreement is terminated following the occurrence of a reverse termination
fee event. See “Arrangement Agreement - Termination Fee” in the Arrangement Circular.
2019 Annual Report Transat A.T. Inc. | 37
Management’s Discussion and Analysis
Occurrence of a material adverse effect
The completion of the arrangement is subject to the condition that, among other things, on or after June 27, 2019 (the date
the Arrangement Agreement was entered into), there shall not have occurred a material adverse effect. Although a material
adverse effect excludes certain events, including events in some cases that are beyond the control of Transat, there can be
no assurance that a material adverse effect will not occur prior to the closing of the arrangement. If such a material adverse
effect occurs and Air Canada does not waive same or terminates the Arrangement Agreement, the arrangement would not
proceed. See “Arrangement Agreement - Closing Conditions” in the same Circular.
Securityholders will no longer hold an interest in the Corporation following the arrangement
Following the arrangement, the shareholders will no longer hold any of the voting shares or other securities of the
Corporation or its affiliates and the shareholders will forego any future increase in value that would result from future growth
and the potential achievement of the Corporation’s long-term plans.
Uncertainty surrounding the arrangement
As the arrangement is dependent upon satisfaction of a number of conditions precedent, its completion is uncertain. In
response to this uncertainty, Transat’s clients may delay or defer decisions concerning Transat. Any delay or deferral of those
decisions by clients could adversely affect the business and operations of Transat, regardless of whether the arrangement is
ultimately completed. Such uncertainty as well as required time for effective completion may adversely affect Transat’s ability
to attract or retain key personnel or the morale of its teams. In the event the Arrangement Agreement is terminated, the
Corporation’s relationships with customers, suppliers, creditors, landlords, employees and other stakeholders may be
adversely affected. Changes in such relationships could adversely affect the business and operations of the Corporation.
RISKS RELATED TO HOTEL DEVELOPMENT
Transat had started investing in the hotel industry to take advantage of this activity’s currently favourable position in its
tourism chain. However, as a result of the Arrangement Agreement, the investments required for such hotel development
are suspended. If the said transaction does not occur, the delayed resumption of hotel development could reduce the
positive impacts expected initially and, consequently, the results of operations of the Corporation could be adversely
affected. Also, in the event that the Corporation decides to develop its hotel business, we may be exposed to risks which
may include, among others: construction delays and cost overruns which may increase the cost of the project; difficulties in
obtaining zoning, occupancy and other required governmental permits and authorizations; strikes or other local labour
issues; development fees incurred for projects that are not completed; significant investments with no immediate
corresponding revenues; natural risks such as earthquakes, hurricanes, floods or fires which may negatively impact a resort;
the ability to raise capital, including construction financing; and government restrictions with respect to the nature and size
of a hotel project.
As a result of the foregoing, the Corporation cannot guarantee that any hotel development project would be completed on
time or within the budget limits. In addition, there is a risk that the rate of return on investments will be inferior to the returns
expected when the project is undertaken. Consequently, the results of operations from such hotel development could be
negatively affected, which could in turn have a material adverse effect on the Corporation’s business, financial position,
liquidity, results of operations and prospects.
2019 Annual Report Transat A.T. Inc. | 38
Management’s Discussion and Analysis
ECONOMIC AND GENERAL RISKS
The holiday travel industry is sensitive to global, national, regional and local economic conditions. Economic factors such as
a significant downturn in the economy, a recession or a decline in consumer purchasing power or the employment rate in
North America, Europe or key international markets could have a negative impact on our business and operating results by
affecting demand for our products and services. Although there are signs of economic recovery in certain tourist areas served
by the Corporation, financial markets could slide back into negative economic growth.
Seasonal planning of flight and person-night capacity is a risk in the tourism industry. For the Corporation, it entails
forecasting traveller demand in advance and anticipating trends in future preferred destinations. Poor planning for those
needs could unfavourably impact our business, financial situation and operating results.
Our operating results could also be adversely affected by factors beyond Transat’s control, including the following: extreme
weather conditions, climate-related or geological disasters, war, political instability, terrorism whether actual or
apprehended, epidemics or disease outbreaks, consumer preferences and spending patterns, consumer perceptions of
destination-based service and airline safety, demographic trends, disruptions to air traffic control systems, and costs of
safety, security and environmental measures. Furthermore, our revenues are sensitive to events affecting domestic and
international air travel as well as the level of car rentals and hotel and cruise reservations.
COMPETITION RISKS
Transat operates in an industry in which competition has been intense for several years. Air carriers and tour operators have
expanded their presence in markets long served by Transat. Some of them are larger, with strong brand name recognition
and an established presence in specific geographic areas, substantial financial resources and preferred relationships with
travel suppliers. We also face competition from travel suppliers selling directly to travellers at very competitive prices. The
Corporation could thus be unable to compete successfully against existing or potential competitors, and intense competition
could have a material adverse effect on its operations, prospects, revenues and profit margin.
In addition, traveller needs dictate how our industry evolves. In recent years, travellers have demanded higher value, better
product selection and personalized service, all at competitive prices. Widespread adoption of the Internet now makes it
easier for travellers to access information on travel products and services directly from suppliers, thus bypassing not only
tour operators such as Transat, but also retail travel agents through whom we generate a portion of our revenues. Since our
available seat capacity and person-nights are also influenced by market forces, our business model is called into question in
some respects. The Corporation’s inability to rapidly meet those expectations in a proactive manner could adversely impact
its competitive positioning while reducing profitability of its products.
Further, given that we rely to some extent on retail travel agencies for access to travellers and revenues, any consumer shift
away from travel agencies and toward direct purchases from travel suppliers could impact the Corporation.
These competitive pressures could adversely impact our revenues and margins since we would likely have to match
competitors’ prices. The Corporation’s performance in all of the countries in which it operates will depend on its continued
ability to offer quality products at competitive prices.
REPUTATION RISK
The ability to maintain favourable relationships with its existing customers and attract new customers greatly depends on
Transat’s service offering and its reputation. While the Corporation has already implemented sound governance practices,
including a code of ethics, and developed certain mechanisms over the years to prevent its reputation from being adversely
affected, there can be no assurance that Transat will continue to enjoy a good reputation or that events beyond its control
will not tarnish its reputation. The loss or tarnishing of its reputation could have a material unfavourable effect on the
Corporation’s operations, prospects, financial position and operating results.
2019 Annual Report Transat A.T. Inc. | 39
Management’s Discussion and Analysis
FINANCIAL RISKS
The travel industry in general and our operations in particular are seasonal. As a result, our quarterly operating results are
subject to fluctuations. In our view, comparisons of our operating results between quarters or between six-month periods
are not necessarily meaningful and should not be relied on as indicators of future performance. Furthermore, due to the
economic and general factors described herein, our operating results in future periods could fall short of the expectations
of securities analysts and investors, thus affecting the market price of our shares.
While Transat has substantial cash on hand to respond to competitive pressures or capitalize on growth opportunities, the
availability of financing under our existing credit facilities is subject to compliance with certain financial ratios and conditions.
There can be no guarantee that, in the future, our ability to use our existing credit facilities or to obtain additional financing
will not be jeopardized. Moreover, financial market volatility could limit access to credit and raise borrowing costs, hampering
access to additional funding under satisfactory terms and conditions. Our business, financial position and operating results
could thus be adversely affected.
Transat is particularly exposed to fluctuations in fuel costs. Due to competitive pressures in the industry, there can be no
assurance that we would be able to pass along any increase in fuel prices to our customers by increasing fares, or that any
such fare increase would offset higher fuel costs, which could in turn adversely impact our business, financial position or
operating results.
Transat has significant non-cancellable lease obligations relating to its aircraft fleet. If revenues from aircraft operations
were to decrease, the payments to be made under our existing lease agreements could have a substantial impact on
our business.
Transat is exposed, due to its many arrangements with foreign-based suppliers, to fluctuations in exchange rates mainly
concerning the U.S. dollar, the euro and the pound sterling against the Canadian dollar. These exchange rate fluctuations
could increase our operating costs or decrease our revenues. Changes in interest rates could also impact interest income
from our cash and cash equivalents as well as interest expenses on our variable-rate debt instruments, which in turn could
affect our interest income and interest expenses.
In the normal course of business, we receive customer deposits and advance payments. If funds from advance payments
were to diminish or be unavailable to pay our suppliers, we would be required to secure alternative capital funding. There
could be no assurance that additional funding would be available under terms and conditions suitable to the Corporation,
which could adversely affect our business. Moreover, these advance payments generate interest income for Transat. In
accordance with our investment policy, we are required to invest these deposits and advance payments exclusively in
investment-grade securities. Any failure of these investment securities to perform at historical levels could reduce our
interest income.
As a Corporation that processes information with respect to credit cards used by our customers, we must comply with the
regulatory requirements of our credit card processors. Failure to comply with certain financial ratios or certain rules
regarding deposits or bank card data security may result in penalties or in the suspension of service by credit card processors.
The inability to use credit cards could have a significant negative impact on our reservations and consequently on our
operating results and profitability.
Last, it is sometimes difficult to foresee how certain Canadian or international tax laws will be interpreted by the appropriate
tax authorities. Subsequent to interpretation of these laws by the different authorities, the Corporation may have to review
its own interpretations of tax laws, which in turn could have an adverse impact on our profit margin.
2019 Annual Report Transat A.T. Inc. | 40
Management’s Discussion and Analysis
KEY SUPPLIES AND SUPPLIER RISKS
Despite being well positioned due to our vertical integration, we depend on third parties who supply us with certain
components of our packages. Any significant interruption in the flow of goods and services from these suppliers, which may
be outside our control, could have a significant adverse impact on our business, financial position and operating results.
Our dependence, among others, on Airbus, Boeing, Rolls-Royce, General Electric, Lufthansa Technik and Safran means that
we could be adversely affected by problems connected with Airbus and Boeing aircraft and Rolls-Royce or General Electric
engines, including defective material, mechanical problems or negative perceptions among travellers. The Corporation also
relies on certain suppliers for its information system security and maintenance. See the Technological risks section.
We are also dependent on non-group airlines and a large number of hotels, several of which are exclusive to the Corporation.
In general, these suppliers can terminate or modify existing agreements with us on relatively short notice. The potential
inability to replace these agreements, to find similar suppliers, or to renegotiate agreements at reduced rates could have an
adverse effect on our business, financial position and operating results.
Furthermore, any decline in the quality of travel products or services provided by these suppliers, or any perception by
travellers of such a decline, could adversely affect our reputation. Any loss of contracts, changes to our pricing agreements,
access restrictions to travel suppliers’ products and services or negative shifts in public opinion regarding certain travel
suppliers resulting in lower demand for their products and services could have a significant effect on our results.
AVIATION RISKS
To carry on business or extend its outreach, the Corporation requires access to aircraft that are largely operated by its
subsidiary Air Transat. This fleet consists primarily of aircraft leased for several years, sometimes under renewable leases,
with varying renewal dates and conditions. If the Corporation were unable to renew its leases for long-term or seasonal
leasing, secure timely access to appropriate aircraft under adequate conditions or retire certain aircraft as anticipated, such
an outcome could adversely impact the Corporation.
Our focus on five types of aircraft could result in significant downtime for part of our fleet if mechanical problems arise or if
the regulator releases any mandatory inspection or maintenance directives applicable to our types of aircraft. If our
operations are disrupted due to aircraft unavailability, the loss of associated revenues could have an adverse impact on our
business, financial position and operating results.
An incident involving one of our aircraft during our operations could give rise to repair costs or major replacement costs for
the damaged aircraft, service interruption, and claims. Consequently, such an event could have an unfavourable impact on
the Corporation’s reputation.
The Corporation also requires access to airport facilities in its source markets and multiple destinations. In particular, the
Corporation must have access to takeoff and landing slots and gates under conditions that allow it to be competitive.
Accordingly, any difficulty in securing such access or disruptions in airport operations caused, for instance, by labour
conflicts or other factors could adversely affect our business.
With the privatization of airports and air navigation authorities in Canada, airports and air navigation authorities have imposed
significant increases in airport user fees and air navigation fees, particularly since some of these airports are located in
U.S. border towns and are not subject to such fees. If these user and navigation fees were to increase substantially, our
business, financial position and operating results could be adversely affected, which would result in certain routes being
conceded to our U.S. competitors.
2019 Annual Report Transat A.T. Inc. | 41
Management’s Discussion and Analysis
TECHNOLOGICAL RISKS
Transat relies heavily on various information and telecommunications technologies to operate its business, increase its
revenues and reduce its operating expenses. Our business depends on our ability to manage reservation systems, including
handling high telephone call volumes on a daily basis, monitor product profitability and inventory, adjust prices quickly,
access and protect information, distribute our products to retail travel agents and other travel intermediaries, and stave off
information system intrusions. Rapid changes in these technologies and growing demand for web-based or mobile
reservations could require higher-than-anticipated capital expenditures to improve customer service, which could impact
our operating results.
These technology systems may be vulnerable to a variety of sources of failure, interruption or misuse, including by reason of
third-party suppliers’ acts or omissions, natural disasters, terrorist attacks, telecommunication systems failures, power
failures, computer viruses, computer hacking, unauthorized or fraudulent users, and other operational and security issues.
Furthermore, the exploitation of system vulnerabilities is increasingly sophisticated and frequent and requires constant
management of and developments in the measures taken. While Transat continues to invest in initiatives, including security
initiatives and disaster recovery plans, these measures may not be adequate or implemented properly or in a timely manner.
Any systems failures or outages could materially and adversely affect the Corporation’s operations and its customer
relationships and could have an adverse effect on the Corporation’s reputation, its operating results and financial position.
Furthermore, several of those information technology systems depend on third-party providers, such as Softvoyage, Datalex
and Radixx. Those suppliers sell more external solutions (through partnerships or cloud services) requiring additional control
measures. If these providers were to become incapable of maintaining or improving efficient technology solutions in a
profitable and timely manner, the Corporation would be unable to react effectively to information security attacks, obtain
new systems to meet growth in its customer base or support new products offered by the Corporation. Consequently, such
situations could generate additional expenses, which would unfavourably impact the Corporation’s financial position.
CYBER ATTACK RISKS
The Corporation gathers, uses and retains over a fixed period of time large amounts of customer data for commercial,
marketing and other purposes in our various computer systems. This data is stored and processed in our facilities and in
third-party facilities, including, for example, in a cloud-based environment hosted by a third party. The integrity and
protection of the data of our customers, employees and business, as well as the continued operation of our systems and
other third-party service providers, are essential to our operations. Security and privacy regulations and contractual
obligations are increasingly demanding.
Despite our efforts to protect against unauthorized access to our systems and sensitive information, due to the scope and
complexity of their information technology structure, our reliance on third parties to support and protect our structure and
data, and a constantly evolving cyber threat environment, our systems and those of third parties we rely on are subject to
disruptions, failures, unauthorized access, cyber terrorism, employee errors, negligence, fraud or other misuse. In addition,
given the sophistication of hackers to gain unauthorized access to our sensitive information, we may be unable to detect the
violation for long periods of time, or even not at all. Such events, whether accidental or intentional, could result in the theft,
unauthorized access or disclosure, loss, misuse or unlawful use of customer data that could damage our reputation, disrupt
or interrupt our services or result in business loss, as well as repair and other costs, fines, investigations, legal actions or
proceedings. As a result, future incidents could have a material adverse effect on the Corporation, including our business,
financial condition, liquidity and operating results.
2019 Annual Report Transat A.T. Inc. | 42
Management’s Discussion and Analysis
REGULATORY RISKS
The industry in which Transat operates is subject to extensive Canadian and foreign government regulations. These relate to,
among other things, security, safety, consumer rights, permits, licensing, intellectual property rights, privacy, competition,
pricing and the environment. Consequently, Transat’s future results may vary depending on the actions of government
authorities with jurisdiction over our operations. These actions include the granting and timing of certain government
approvals or licenses; the adoption of regulations impacting customer service standards (such as new passenger security
standards); the adoption of more stringent noise restrictions or curfews; and the adoption of provincial regulations impacting
the operations of retail and wholesale travel agencies. In addition, the adoption of new or different regulatory frameworks
or amendments to existing legislation or regulations and tax policy changes could affect our operations, particularly as regards
hotel room taxes, car rental taxes, airline taxes and airport fees.
In the fight against climate change, the International Civil Aviation Organization (ICAO) has established an international model
whereby taxes would be imposed on greenhouse gas emissions to offset emissions. For domestic air travel, the federal
government plans to introduce new legislation that would be accompanied by regulations to implement a carbon pricing
system. The impact of this new legislation on the aviation industry is not clear at this time, nor the potential financial
implications for Air Transat. However, if this legislation does materialize, additional costs could result, which the Corporation
might be unable to fully pass on through its product selling prices. In such a scenario, its margin would be adversely affected.
In the course of our business in the air carrier and travel industry, the Corporation is exposed to claims and legal proceedings,
including class action suits. Litigation and claims could adversely affect our business and operating results.
Lastly, as previously described in the Transaction Risks section, Air Canada’s acquisition of the issued and outstanding shares
of Transat is subject to regulatory approval. To date, there can be no assurance that the acquisition will be carried out or will
be carried out in accordance with terms and conditions imposed by the regulators.
HUMAN RESOURCE RISKS
Labour costs constitute one of Transat’s largest operating cost items. There can be no assurance that Transat will be able to
maintain such costs at levels that do not negatively affect its business, results from operations and financial position.
The Corporation’s ability to achieve its business plan is a function of the experience of its key executives and employees, and
their expertise in the tourism, travel and air carrier industries. The loss of key employees could adversely affect our business
and operating results. Further, our recruitment program, salary structure, performance management programs, succession
plan, as well as our training plan carry risks that could have adverse effects on our ability to attract and retain the skilled
resources needed to sustain the Corporation’s growth and success.
As of October 31, 2019, the Corporation had 5,100 employees, almost 60% of whom are unionized and are subject to
six collective agreements, all of which had been renewed as at October 31, 2019. The Airline Pilots Association Agreement will
expire in the coming year. It is possible that negotiations to renew this collective agreement could give rise to work stoppages
or slowdowns or higher labour costs that could unfavourably impact our operations and operating income.
2019 Annual Report Transat A.T. Inc. | 43
Management’s Discussion and Analysis
INSURANCE COVERAGE RISKS
We hold and maintain in full force insurance policies for amounts conforming to industry standards. Our liability insurance
for our tour operator and travel agency activities covers the liability for bodily harm or property damage suffered by travellers
or third parties. In the context of our activities as a tour operator, we use reasonable efforts to ensure that our service
providers also have insurance covering bodily harm or property damage suffered by travellers. Furthermore, in collaboration
with an insurer, we established a voluntary professional liability insurance (errors and omissions) plan for our franchisees.
We also hold and maintain in full force insurance policies for amounts in accordance with airline industry standards and in
compliance with applicable statutory requirements and the commitments under our aircraft lease agreements. Our liability
insurance for airline operations covers liability related to damages resulting from injury or death of passengers, as well as to
damage suffered by third parties. The limit for any single event is US$1.25 billion with the exception of war risk bodily
injury/property damage to third parties excluding passengers where the limit is US$250 million for any single event in the
aggregate. In this latter regard, additional insurance is carried and maintained for war risk bodily injury/property damage to
third parties excluding passengers covering the excess of US$250 million up to the limit of US$1.0 billion for any single event
in the aggregate.
However, there can be no assurance of all risks being covered in this manner or our ability to secure coverage providing
favourable levels and conditions at an acceptable cost.
Although we have never faced a liability claim for which we did not have adequate insurance coverage, there can be no
assurance that our coverage will be sufficient to cover larger claims or that the insurer concerned will be solvent at the time
of any covered loss. In addition, there can be no assurance that we will be able to obtain coverage at acceptable levels and
cost in the future. These uncertainties could adversely affect our business and operating results.
2019 Annual Report Transat A.T. Inc. | 44
Management’s Discussion and Analysis
13. CONTROLS AND PROCEDURES
The implementation of the Canadian Securities Administrators National Instrument 52-109 represents a continuous
improvement process, which has prompted the Corporation to formalize existing processes and control measures and
introduce new ones. Transat has chosen to make this a corporate-wide project, which will result in operational improvements
and better management.
In accordance with this instrument, the Corporation has filed certificates signed by the President and Chief Executive Officer
and the Vice-President, Finance and Administration and Chief Financial Officer that, among other things, report on the design
and effectiveness of disclosure controls and procedures (“DC&P”) and the design and effectiveness of internal control over
financial reporting (“ICFR”).
The President and Chief Executive Officer and the Vice-President, Finance and Administration and Chief Financial Officer
have designed DC&P or caused them to be designed under their supervision to provide reasonable assurance that material
information relating to the Corporation has been made known to them and that information required to be disclosed in the
Corporation’s filings is recorded, processed, summarized and reported within the prescribed time periods under
securities legislation.
Also, the President and Chief Executive Officer and the Vice-President, Finance and Administration and Chief Financial
Officer have designed ICFR or have caused it to be designed under their supervision to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for financial reporting purposes in
accordance with IFRS.
EVALUATION OF DC&P AND ICFR
An evaluation of the design and operating effectiveness of DC&P and ICFR was carried out under the supervision of the
President and Chief Executive Officer and the Vice-President, Finance and Administration and Chief Financial Officer. This
evaluation consisted of a review of documentation, audits and other procedures that management considered appropriate
in the circumstances. Among other things, the evaluation took into consideration the Corporate Disclosure Policy, the code
of professional ethics, the sub-certification process and the operation of the Corporation’s Disclosure Committee.
Based on this evaluation and using the criteria set by the Committee of Sponsoring Organizations of the Treadway Commission
on Internal Control – Integrated Framework (COSO-Framework 2013) and in connection with the preparation of its year-end
financial statements, the two certifying officers concluded that the design of DC&P and ICFR were effective as at
October 31, 2019.
Lastly, no significant changes in ICFR occurred during the fourth quarter ended October 31, 2019 that materially affected the
Corporation’s ICFR.
2019 Annual Report Transat A.T. Inc. | 45
Management’s Discussion and Analysis
14. OUTLOOK
Winter 2020 – In the sun destinations program, the Corporation’s main program for the period, Transat’s capacity is higher
by 6.7%. To date, 56% of that capacity has been sold, bookings are ahead by 13.1%, and load factors are 3.4% higher compared
with 2019. The impact of fluctuations in the Canadian dollar, combined with decreased fuel costs, will result in a nil increase
in operating expenses if the dollar against the U.S. dollar and aircraft fuel prices remain stable. Margins are currently at slightly
higher levels compared with the same date last year.
In the transatlantic program, where it is low season, load factors are tracking 1.6% higher than last winter. Prices are currently
up 4.2% from the same date last year.
If the current trends hold, the Corporation expects its results for the winter season to be slightly higher than those of last
year.
2019 Annual Report Transat A.T. Inc. | 46
Annual Report 2019
MANAGEMENT’S REPORT
The consolidated financial statements and MD&A of Transat A.T. Inc., and all other information in the financial report, are
the responsibility of management and have been reviewed and approved by the Board of Directors.
The consolidated financial statements have been prepared by management in accordance with IFRS issued by the
International Accounting Standards Board. The MD&A has been prepared in accordance with the requirements of the
Canadian Securities Administrators. Management’s responsibility in these respects includes the selection of appropriate
accounting principles as well as the exercise of sound judgment in establishing reasonable and fair estimates in accordance
with IFRS and the requirements of the Canadian Securities Administrators, and which are adequate in the circumstances.
The financial information presented throughout the MD&A and elsewhere in this Annual Report is consistent with that
appearing in the consolidated financial statements.
The Corporation and its affiliated companies have set up accounting and internal control systems designed to provide
reasonable assurance that the Corporation’s assets are safeguarded against loss or unauthorized use and that its books of
account may be relied upon for the preparation of consolidated financial statements and the MD&A.
The Board of Directors is responsible for the financial information presented in the consolidated financial statements and
the MD&A, primarily through its Audit Committee. The Audit Committee, which is appointed by the Board of Directors and
comprised entirely of independent and financially literate directors, reviews the annual consolidated financial statements
and the MD&A and recommends their approval to the Board of Directors. The Audit Committee is also responsible for
analyzing, on an ongoing basis, the results of the audits by the external auditors, the accounting methods and policies used
as well as the internal control systems set up by the Corporation. These consolidated financial statements have been audited
by Ernst & Young LLP. Their report on the consolidated financial statements appears on the next page.
Jean-Marc Eustache
Chairman of the Board,
President and Chief Executive Officer
Denis Pétrin
Vice-President, Finance and Administration
and Chief Financial Officer
2019 Annual Report Transat A.T. Inc. | 47
Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Transat A.T. Inc.,
Opinion
We have audited the consolidated financial statements of Transat A.T. Inc. and its subsidiaries (the “Group”), which comprise
the consolidated statement of financial position as at October 31, 2019 and 2018, and the consolidated statements of income
(loss), the consolidated statements of comprehensive income (loss), the consolidated statements of changes in equity and
the consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Group as at October 31, 2019 and 2018, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (”IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Other information
Management is responsible for the other information. The other information comprises:
Management’s Discussion and Analysis
The information, other than the consolidated financial statements and our auditor’s report thereon, in the
Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information,
and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and the Annual Report prior to the date of this auditor’s report. If, based
on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact in this auditor’s report. We have nothing to report in this regard.
2019 Annual Report Transat A.T. Inc. | 48
Annual Report 2019
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
2019 Annual Report Transat A.T. Inc. | 49
Annual Report 2019
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Sylvain Boucher.
Montréal, Canada
December 11, 2019
1 CPA auditor, CA, public accountancy permit No. A113209
2019 Annual Report Transat A.T. Inc. | 50
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at October 31
2019
(in thousands of Canadian dollars)
Note
$
ASSETS
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Derivative financial instruments
Current portion of deposits
Current assets
Cash and cash equivalents reserved
Deposits
Income taxes receivable
Deferred tax assets
Property, plant and equipment
Intangible assets
Derivative financial instruments
Investments
Other assets
Non-current assets
LIABILITIES
Trade and other payables
Current portion of provision for overhaul of leased aircraft
Income taxes payable
Customer deposits and deferred revenues
Derivative financial instruments
Current liabilities
Provision for overhaul of leased aircraft
Other liabilities
Derivative financial instruments
Deferred tax liabilities
Non-current liabilities
EQUITY
Share capital
Share-based payment reserve
Retained earnings
Unrealized gain on cash flow hedges
Cumulative exchange differences
See accompanying notes to consolidated financial statements
On behalf of the Board,
7
8
9
10
7
10
22
22
11
12
9
13
14
15
16
9
16
18
9
22
19
Director
Director
Annual Report 2019 Transat A.T. Inc. | 51
2018
Restated
[note 4]
$
593,654
287,735
139,979
11,405
14,464
68,890
20,413
20,250
1,156,790
51,184
41,742
15,100
14,954
201,478
42,689
84
16,084
26,685
564,844
301,547
137,449
1,423
15,847
83,822
4,870
17,765
1,127,567
51,224
41,226
15,100
27,209
235,161
36,852
—
16,533
34,055
457,360
410,000
1,584,927
1,566,790
315,395
27,151
4,244
561,404
10,431
918,625
31,097
97,498
1,650
1,274
131,519
221,012
15,948
314,325
(9,176)
(7,326)
320,732
27,313
1,117
517,352
2,766
869,280
29,915
92,025
679
3,252
125,871
219,684
18,017
340,766
1,971
(8,799)
534,783
571,639
1,584,927
1,566,790
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years ended October 31
(in thousands of Canadian dollars, except per share amounts)
Revenues
Operating expenses
Costs of providing tourism services
Aircraft fuel
Salaries and employee benefits
Aircraft maintenance
Sales and distribution costs
Airport and navigation fees
Aircraft rent
Other airline costs
Other
Share of net loss (income) of a joint venture
Depreciation and amortization
Special items
Operating income (loss)
Financing costs
Financing income
Change in fair value of fuel-related derivatives and other derivatives
Gain on business disposals
Foreign exchange (gain) loss on non-current monetary items
Income before income tax expense
Income taxes (recovery)
Current
Deferred
Net income (loss) for the year
Net income (loss) attributable to:
Shareholders
Non-controlling interests
Earnings (loss) per share
Basic
Diluted
See accompanying notes to consolidated financial statements
Note
20
20, 24
13
20
21
6
22
19
2019
$
2018
Restated
[note 4]
$
2,937,130
2,848,955
808,937
517,588
412,375
279,283
209,344
158,618
143,784
262,477
105,304
1,250
64,078
23,875
863,105
498,512
386,898
237,918
209,921
149,699
124,454
263,272
97,577
105
59,125
8,962
2,986,913
2,899,548
(49,783)
1,520
(21,332)
8,664
(9)
140
(38,766)
1,028
(9,250)
(8,222)
(30,544)
(33,191)
2,647
(30,544)
(0.88)
(0.88)
(50,593)
2,061
(17,935)
(8,360)
(31,064)
(339)
5,044
(6,494)
1,545
(4,949)
9,993
6,451
3,542
9,993
0.17
0.17
Annual Report 2019 Transat A.T. Inc. | 52
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended October 31
(in thousands of Canadian dollars)
Net income (loss) for the year
Other comprehensive income (loss)
Items that will be reclassified to net income
Change in fair value of derivatives designated as cash flow hedges
Reclassification to net income
Deferred taxes
Foreign exchange gain (loss) on translation of
financial statements of foreign subsidiaries
Items that will never be reclassified to net income
Retirement benefits – Net actuarial gains
Deferred taxes
Total other comprehensive income (loss)
Comprehensive income (loss) for the year
Attributable to:
Shareholders
Non-controlling interest
See accompanying notes to consolidated financial statements
2019
Note
$
2018
Restated
[note 4]
$
(30,544)
9,993
22
24
22
(29,621)
14,455
4,019
(11,147)
1,473
1,473
(4,631)
1,225
(3,406)
(13,080)
(43,624)
2,815
(5,385)
692
(1,878)
1,586
1,586
2,219
(595)
1,624
1,332
11,325
(46,272)
2,648
(43,624)
6,788
4,537
11,325
Annual Report 2019 Transat A.T. Inc. | 53
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated other
comprehensive income
(loss)
Share-
based
payment
reserve
Unrealized
gain (loss)
on cash
flow hedges
Cumulative
exchange
differences
Retained
earnings
Share
capital
Restated
Restated
$
$
(in thousands of Canadian dollars)
Balance as at October 31, 2017
Net income for the year
Other comprehensive income (loss)
Comprehensive income (loss) for
the year
Issued from treasury
Exercise of options
Vesting of PSUs
Share-based payment expense
Dividends
Fair value changes in non-
controlling interest liabilities
Reclassification of non-controlling
interest liabilities
Reclassification of non-controlling
interest exchange difference
Balance as at October 31, 2018
Net income (loss) for the year
Other comprehensive income (loss)
Comprehensive income (loss) for
the year
Issued from treasury
Exercise of options
Vesting of PSUs
Share-based payment expense
Reclassification of PSUs
as financial liability
Dividends
Fair value changes in non-
controlling interest liabilities
Reclassification of non-controlling
interest liabilities
Reclassification of non-controlling
interest exchange difference
215,444
—
—
—
1,555
2,685
—
—
—
—
—
—
4,240
219,684
—
—
—
940
388
—
—
—
—
—
—
[note 4]
$
330,856
6,451
1,624
8,075
—
—
—
—
—
1,835
—
—
1,835
340,766
(33,191)
(3,406)
17,817
—
—
—
—
(812)
(1,198)
2,210
—
—
—
—
200
18,017
—
—
—
—
(120)
(19)
1,612
(36,597)
—
—
—
—
(3,542)
—
—
—
—
—
10,156
—
Non-
controlling
interests
$
—
3,542
995
4,537
—
—
—
—
(3,302)
Total
Restated
[note 4]
$
557,581
6,451
337
6,788
1,555
1,873
(1,198)
2,210
—
Total
equity
Restated
[note 4]
$
557,581
9,993
1,332
11,325
1,555
1,873
(1,198)
2,210
(3,302)
1,835
(1,835)
—
—
1,595
1,595
$
(10,385)
—
591
591
—
—
—
—
—
—
—
995
995
(8,799)
—
1,472
1,472
—
—
—
—
995
7,270
571,639
(33,191)
(13,081)
(46,272)
940
268
(19)
1,612
(995)
(4,537)
—
2,647
1
2,648
—
—
—
—
—
2,733
571,639
(30,544)
(13,080)
(43,624)
940
268
(19)
1,612
—
—
—
—
1
1
(3,542)
—
—
(2,892)
(3,542)
(2,892)
10,156
(10,156)
—
—
10,401
10,401
1
9,416
(1)
(2,648)
—
6,768
[note 4]
$
3,849
—
(1,878)
(1,878)
—
—
—
—
—
—
—
—
—
1,971
—
(11,147)
(11,147)
—
—
—
—
—
—
—
—
—
—
—
1,328
—
(2,069)
—
10,156
Balance as at October 31, 2019
See accompanying notes to consolidated financial statements
221,012
15,948
314,325
(9,176)
(7,326)
534,783
—
534,783
Annual Report 2019 Transat A.T. Inc. | 54
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31
2019
(in thousands of Canadian dollars)
Note
$
2018
Restated
[note 4]
$
OPERATING ACTIVITIES
Net income (loss) for the year
Non-cash operating items:
Depreciation and amortization
Change in fair value of fuel-related derivatives and other derivatives
Gain on business disposals
Foreign exchange (gain) loss on non-current monetary items
Share of net loss of a joint venture
Deferred taxes
Employee benefits
Share-based payment expense
Net change in non-cash working capital balances related to operations
Net change in provision for overhaul of leased aircraft
Net change in other assets and liabilities related to operations
Cash flows related to operating activities
INVESTING ACTIVITIES
Additions to property, plant and equipment and other intangible assets
Increase in cash and cash equivalent reserved
Consideration received on business disposals, net of cash disposed of
Capital contribution to a joint venture
Cash flows related to investing activities
FINANCING ACTIVITIES
Proceeds from issuance of shares
Repurchase of shares related to stock-based compensation
Dividends paid by a subsidiary to a non-controlling shareholder
Cash flows related to financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents related to continuing operations
Cash and cash equivalents held for sale, beginning of year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary information (as reported in operating activities)
Net income taxes paid (recovered)
Interest paid
See accompanying notes to consolidated financial statements
20
6
(30,544)
9,993
64,078
8,664
(9)
140
1,250
(9,250)
2,927
1,612
38,868
33,105
1,020
(8,918)
64,075
(92,277)
(40)
1,884
(1,690)
(92,123)
1,208
(19)
(2,892)
(1,703)
59,125
(8,360)
(31,064)
(339)
105
1,545
2,799
2,210
36,014
16,485
9,311
6,994
68,804
(119,053)
(1,084)
26,493
—
(93,644)
3,428
(556)
(3,302)
(430)
941
(28,810)
—
593,654
(982)
(26,252)
26,324
593,582
564,844
593,654
(11,831)
912
10,670
334
Annual Report 2019 Transat A.T. Inc. | 55
Transat A.T. Inc.
Notes to Consolidated Financial Statements
October 31, 2019 and 2018
[Amounts are expressed in thousands of Canadian dollars, except for per share amounts or unless specified otherwise]
Note 1 Corporate information
Transat A.T. Inc. [the “Corporation”], headquartered at 300 Léo-Pariseau Street, Montréal, Québec, Canada, is incorporated
under the Canada Business Corporations Act. Its Class A Variable Voting Shares and Class B Voting Shares are listed on the
Toronto Stock Exchange. The Corporation’s Class A Variable Voting Shares and Class B Voting Shares are traded on the
Toronto Stock Exchange under a single ticker symbol, namely “TRZ”.
The Corporation is an integrated company specializing in the organization, marketing and distribution of holiday travel in the
tourism industry. As at October 31, 2019, the core of its business consists of a tour operator based in Canada which is
vertically integrated with its other services of air transportation, distribution through a dynamic travel agency network,
value-added services at travel destinations and accommodations.
The consolidated financial statements of Transat A.T. Inc. for the year ended October 31, 2019 were approved by the
Corporation’s Board of Directors on December 11, 2019.
Note 2
Significant accounting policies
Basis of preparation
These consolidated financial statements of the Corporation and its subsidiaries have been prepared in accordance with
International Financial Reporting Standards [“IFRS”], as issued by the International Accounting Standards Board [“IASB”] and
as adopted by the Accounting Standards Board of Canada.
These consolidated financial statements are presented in Canadian dollars, the Corporation’s functional currency, except
where otherwise indicated. Each entity of the Corporation determines its own functional currency and items included in the
financial statements of each entity are measured using that functional currency.
These consolidated financial statements have been prepared on a going concern basis, using historical cost accounting,
except for certain financial assets and liabilities classified as financial assets/liabilities at fair value through profit or loss and
measured at fair value.
Basis of consolidation
The consolidated financial statements include the financial statements of the Corporation and its subsidiaries.
SUBSIDIARIES
Subsidiaries are entities over which the Corporation has control. Control is achieved where the Corporation has the power
to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Subsidiaries
are fully consolidated from the date of acquisition, being the date on which the Corporation obtains control, and continue
to be consolidated until the date when such control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries as follows:
Cost is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred
or assumed at the date of exchange, excluding transaction costs which are expensed as incurred;
Identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date;
The excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded
as goodwill;
2019 Annual Report Transat A.T. Inc. | 56
Transat A.T. Inc.
Notes to Consolidated Financial Statements
If the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net assets
is re-assessed and any remaining difference is recognized directly in the statement of income;
Contingent consideration is measured at fair value on the acquisition date, with subsequent changes in the
fair value recorded through the statement of income when the contingent consideration is a
financial liability;
Upon gaining control in a step acquisition, the existing ownership interest is re-measured to fair value
through the statement of income; and
For each business combination including the non-controlling interest, the acquirer measures the non-
controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s
identifiable net assets.
The non-controlling interest, which represent the portion of net income and net assets in subsidiaries that are not 100%
owned by the Corporation, is reported separately within equity in the consolidated statement of financial position. The non-
controlling interest in respect of which shareholders hold an option entitling them to require the Corporation to buy back
their shares is reclassified from equity to liabilities, deeming exercise of the option. The carrying amount of the reclassified
interest is also adjusted to match its estimated redemption value. Any changes in the estimated redemption value are
recognized as equity transactions in retained earnings.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company and using
consistent accounting policies. All balances, transactions and unrealized gains and losses resulting from intragroup
transactions and all intragroup dividends are fully eliminated on consolidation.
INVESTMENT IN A JOINT VENTURE
A joint venture is an entity in which the parties that have joint control over the entity have rights to the net assets of the
entity. The Corporation’s investment in a joint venture is accounted for using the equity method as follows:
Investment is initially recognized at cost;
Investment in an associate includes goodwill identified on acquisition, net of any accumulated
impairment loss;
The Corporation’s share of post-acquisition net income (loss) is recognized in the statement of income and
is also added to (netted against) the carrying amount of the investment; and
Gains on transactions between the Corporation and the joint venture are eliminated to the extent of the
Corporation’s interest in this entity and losses are eliminated unless the transaction provides evidence of
an impairment of the asset transferred.
Foreign currency translation
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of
the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the functional
currency spot rate of exchange at the reporting date.
Foreign exchange gains and losses resulting from the settlement of such transactions as well as from the translation of
monetary assets and liabilities not denominated in the functional currency of the subsidiary are recognized in the statement
of income, except for qualifying cash flow hedges, which are deferred and presented as Unrealized gain (loss) on cash flow
hedges in Accumulated other comprehensive income (loss) in the statement of changes in equity.
2019 Annual Report Transat A.T. Inc. | 57
Transat A.T. Inc.
Notes to Consolidated Financial Statements
GROUP COMPANIES
Assets and liabilities of entities with functional currencies other than the Canadian dollar are translated at the period-end
rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The exchange
differences arising from translation are recognized in Cumulative exchange differences in Accumulated other comprehensive
income (loss) in equity. On disposal of an interest, the exchange difference component relating to that particular interest is
recognized in net income.
Cash equivalents
Cash equivalents consist primarily of term deposits and bankers’ acceptances that are highly liquid and readily convertible
into known amounts of cash with initial maturities of less than three months.
Inventories
Inventories, consisting primarily of supplies and fuel, are valued at the lower of cost, determined using the first-in, first-out
method, and net realizable value. Net realizable value is the estimated selling price in the normal course of business less
estimated costs to sell. Replacement cost may be indicative of net realizable value.
Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated depreciation and provision for impairment, if any.
Depreciation on property, plant and equipment with finite lives is calculated on a straight-line basis, unless otherwise
specified, and serves to write down the cost of the assets to their estimated residual value over their expected useful lives
as follows:
Aircraft equipment, including spare engines and rotable spare parts
Office furniture and equipment
Leasehold improvements
Administrative building
5–10 years or use
3–10 years
Lease term or useful life
10–45 years
Land and property, plant and equipment under construction or development are not depreciated.
The fleet includes owned aircraft and improvements to aircraft under operating leases. A portion of the cost of owned aircraft
is allocated to the “major maintenance activities” subclass, which relates to airframe, engine and landing gear overhaul costs,
and the remaining cost is allocated to Aircraft. Aircraft and major maintenance activities are depreciated taking into account
their expected estimated residual value. Aircraft are depreciated on a straight-line basis over seven- to ten-year periods,
and major maintenance activities are depreciated according to the type of maintenance activity on a straight-line basis or
based on the use of the corresponding aircraft until the next related major maintenance activity, or their expected useful
lives. Subsequent major maintenance activity expenses are capitalized as major maintenance activities and are depreciated
according to their type. Expenses related to other maintenance activities, including unexpected repairs, are recognized in
net income as incurred. Improvements to aircraft under operating leases are depreciated on a straight-line basis over the
shorter of the corresponding lease term and their useful life.
Estimated residual values and useful lives are reviewed annually and adjusted as appropriate.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired at the
date of acquisition. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment
losses. For the purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Corporation’s cash-generating units [“CGUs”] that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
2019 Annual Report Transat A.T. Inc. | 58
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Intangible assets
Intangible assets are recorded at cost. The cost of intangible assets acquired in a business combination is recorded at fair
value as at the acquisition date. Internally generated intangible assets include developed or modified application software.
These costs are capitalized when the following criteria are met:
It is technically feasible to complete the software product and make it available for use;
Management intends to complete the software product and use it;
The Corporation has ability to use the software product;
It can be demonstrated how the software product will generate probable future economic benefits;
Adequate technical, financial and other resources to complete the development and use the software product
are available;
The expenditures attributable to the software product during its development can be reliably measured.
Costs that qualify for capitalization include both internal and external costs, but are limited to those that are directly related
to the specific project.
Following initial recognition, intangible assets are carried at cost less any accumulated depreciation and impairment losses.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized on a straight-line basis over their respective useful economic lives, as follows:
Software
Customer lists
3–10 years
7–10 years
Intangible assets with finite useful lives are assessed for impairment whenever there is an indication that the intangible asset
may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are
reviewed at least annually and adjusted as appropriate.
Intangible assets with indefinite useful lives, consisting mainly of trademarks, are not amortized but are tested for impairment
at least annually. The indefinite useful life of those assets is reviewed annually, at a minimum, to determine whether events
and circumstances continue to support an indefinite useful life assessment for the assets. If they do not, the change in useful
life assessment from indefinite to finite is made on a prospective basis.
Operating lease and deferred lease inducements
Leases where substantially all the risks and rewards of ownership of the asset are not transferred to the Corporation are
classified as operating leases. Operating lease payments are recognized as an expense on a straight-line basis over the related
lease term.
Deferred lease inducements consist of lease incentive amounts received from landlords and rent-free lease periods. These
lease inducements are recognized through other liabilities and are amortized over the life of the initial lease term on a
straight-line basis as a reduction of amortization expense.
2019 Annual Report Transat A.T. Inc. | 59
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity
instrument of another party. Financial assets of the Corporation include cash and cash equivalents, cash and cash equivalents
in trust or otherwise reserved, trade and other receivables other than amounts receivable due from government, deposits
on leased aircraft and engines, and derivative financial instruments with a positive fair value. Financial liabilities of the
Corporation include trade and other payables other than amounts due to government, long-term debt, derivative financial
instruments with a negative fair value and the put option held by the non-controlling interest.
Financial assets and financial liabilities, including derivative financial instruments, are initially measured at fair value.
Subsequent to initial recognition, financial assets and financial liabilities are measured based on their classification: financial
assets/liabilities at fair value through profit or loss, at fair value through other comprehensive income, or at amortized cost.
The classification of financial assets is determined based on the business model under which risks are managed and the
contractual cash flow characteristics of the financial assets. Financial liabilities are classified by default at amortized cost
except for derivative financial instruments and non-controlling interests. Derivative financial instruments, including
embedded derivative financial instruments that are not closely related to the host contract, are classified as financial assets
or liabilities at fair value through profit or loss unless they are designated within an effective hedging relationship; in that
event, they are classified as financial assets or liabilities at fair value through other comprehensive income.
CLASSIFICATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities at fair value through profit or loss
Financial assets, financial liabilities and derivative financial instruments classified as financial assets or liabilities at fair value
through profit or loss are measured at fair value at the period-end date. Gains and losses realized on disposal and unrealized
gains and losses from changes in fair value are reflected in the consolidated statement of income as incurred.
Financial assets and financial liabilities at fair value through other comprehensive income
Derivative financial instruments designated within an effective hedging relationship classified as financial assets or financial
liabilities at fair value through other comprehensive income are measured at fair value as at the reporting date.
Amortized cost
Financial assets and financial liabilities classified at amortized cost are measured at amortized cost using the effective
interest method.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
The Corporation uses derivative financial instruments to hedge against future foreign currency fluctuations in relation to its
operating lease payments, receipts of revenues from certain tour operators and disbursements pertaining to certain
operating expenses in foreign currencies. For hedge accounting purposes, the Corporation designates some of its foreign
currency derivatives as hedging instruments.
The Corporation formally documents all relationships between the hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedging transactions. This process includes linking all derivative
financial instruments to forecasted cash flows or to a specific asset or liability. The Corporation also formally documents and
assesses, both at the hedge’s inception and on an ongoing basis, whether the hedging instruments are highly effective in
offsetting the changes in the fair value or cash flows of the hedged items.
These derivative financial instruments are designated as cash flow hedges.
All derivative financial instruments are recorded at fair value in the consolidated statement of financial position. The
Corporation has defined a hedging ratio of 1:1 for its hedging relationships. For the derivative financial instruments designated
as cash flow hedges, changes in the fair value of the effective portion are recognized in Other comprehensive income (loss)
in the consolidated statement of comprehensive income. Any ineffective portion within a cash flow hedge is recognized in
net income, as incurred, under Change in fair value of fuel-related derivatives and other derivatives. Should the cash flow
hedge cease to be effective, previously unrealized gains and losses remain within Accumulated other comprehensive income
(loss) as Unrealized gain (loss) on cash flow hedges until the hedged item is settled, and future changes in value of the
derivative instrument are recognized in income prospectively. The change in value of the effective portion of a cash flow
hedge remains in Accumulated other comprehensive income (loss) as Unrealized gain (loss) on cash flow hedges until the
2019 Annual Report Transat A.T. Inc. | 60
Transat A.T. Inc.
Notes to Consolidated Financial Statements
related hedged item is settled, at which time amounts recognized in Unrealized gain (loss) on cash flow hedges are reclassified
to the same consolidated statement of income account in which the hedged item is recognized.
The Corporation enters into foreign currency contract options and designates the intrinsic value of these contracts as cash
flow hedging on future purchases of foreign currencies. The time value of these options, including premiums paid, is
recognized in Other comprehensive income (loss) in the consolidated statement of comprehensive income (loss) for effective
hedging relationships. The time value of these options, including premiums paid, remains in Accumulated other
comprehensive income (loss) as “Unrealized gain (loss) on cash flow hedges” until the settlement of the underlying hedged
item, at which time the premiums paid accounted for under “Unrealized gain (loss) on cash flow hedges” are reclassified
under the same account in the consolidated statement of income (loss) than the underlying hedged item.
For derivative financial instruments designated as fair value hedges, periodic changes in fair value are recognized in the same
account in the consolidated statement of income as the hedged item.
DERIVATIVE FINANCIAL INSTRUMENTS THAT DO NOT QUALIFY FOR HEDGE ACCOUNTING
In the normal course of business, the Corporation also uses fuel-related derivatives to manage its exposure to unstable fuel
prices as well as certain foreign currency derivatives to offset the future risks of fluctuations in foreign currencies that have
not been designated for hedge accounting. These derivatives are measured at fair value at the end of each period, and the
unrealized gains or losses on remeasurement are recorded and presented under Change in fair value of fuel-related
derivatives and other derivatives in the consolidated statement of income. When realized, at maturity of fuel-related
derivative financial instruments, any gains or losses are reclassified to Aircraft fuel. When realized, at maturity of foreign
currency derivatives that do not qualify for hedge accounting, any gains or losses are reclassified to the same consolidated
statement of income account in which the hedged item is recognized.
It is the Corporation’s policy not to speculate on derivative financial instruments; accordingly, these instruments are normally
purchased for risk management purposes and held to maturity.
TRANSACTION COSTS
Transaction costs related to financial assets and financial liabilities classified as financial assets or liabilities at fair value
through profit or loss are expensed as incurred. Transaction costs related to financial assets or to financial liabilities
classified at amortized cost are reflected in the carrying amount of the financial asset or financial liability and are then
amortized over the estimated useful life of the instrument using the effective interest method.
FAIR VALUE
The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to
quoted prices in an active market at the close of business on the reporting date. For financial instruments where there is no
active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length
market transactions, reference to the current fair value of another instrument that is substantially the same, discounted
cash flow analysis or other valuation models.
The Corporation categorizes its financial assets and liabilities measured at fair value into one of three different levels
depending on the observability of the inputs used in the measurement.
Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets
and liabilities in active markets accessible to the Corporation at the measurement date.
Level 2: This level includes valuations determined using directly or indirectly observable inputs other than quoted prices
included within Level 1. Derivative instruments in this category are valued using models or other industry standard
valuation techniques derived from observable market inputs.
Level 3: This level includes valuations based on inputs which are less observable, unavailable or where the observable data
does not support a significant portion of the instruments’ fair value.
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Transat A.T. Inc.
Notes to Consolidated Financial Statements
Impairment of financial assets classified at amortized cost
The Corporation assesses at each reporting date whether there is any objective evidence that a financial asset or a group of
financial assets classified at amortized cost is impaired. A financial asset or a group of financial assets is deemed to be
impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset [an incurred loss event] and that incurred loss event has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can be reliably estimated. In addition, the Corporation
assesses expected credit losses related to its financial assets classified at amortized cost. Accordingly, the Corporation must
determine whether credit risk has increased significantly by comparing the risk of a default occurring on the asset as at each
reporting date with the risk of a default occurring on the asset as at the initial recognition date, taking into account the
information it has been able to obtain, including relevant forward-looking information. Impairment losses are recognized
through profit or loss. For trade receivables, the Corporation applies the simplified approach permitted by IFRS 9 which
requires that full lifetime expected credit losses be recognized starting from initial recognition.
Impairment of non-financial assets
The Corporation assesses at each reporting date whether there is any indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an asset is required, the Corporation estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use
and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of
those from other assets or groups of assets. Value in use is calculated using estimated net cash flows, typically based on
detailed projections over a five-year period with subsequent years extrapolated using a growth assumption. The estimated
net cash flows are discounted to their present value using a discount rate before income taxes that reflects current market
assessments of the time value of money and the risk specific to the asset. In determining fair value less costs to sell, recent
market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation
model may be used. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. Impairment losses are recognized through profit or loss.
The following criteria are also applied in assessing impairment of specific assets:
INTANGIBLE ASSETS
Intangible assets with indefinite useful lives, such as trademarks, are tested for impairment annually [as at April 30], and
when circumstances indicate that the carrying value may be impaired.
REVERSAL OF IMPAIRMENT LOSSES
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or have decreased. If such indication exists, the Corporation
estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has
been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount or exceed
the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been
recognized for the asset in prior years. The reversal is recognized in the statement of income. Impairment losses relating to
goodwill cannot be reversed in future periods.
Provisions
Provisions are recognized when the Corporation has a present, legal or constructive obligation as a result of a past event, it
is probable that an outflow of resources will be required to settle the obligation and the cost can be reliably estimated.
Provisions are measured at their present value.
2019 Annual Report Transat A.T. Inc. | 62
Transat A.T. Inc.
Notes to Consolidated Financial Statements
PROVISION FOR OVERHAUL OF LEASED AIRCRAFT
Under aircraft and engine operating leases, the Corporation is required to maintain the aircraft and engines in serviceable
condition and adhere to the maintenance plan. The Corporation accounts for its leased aircraft and engine maintenance
obligation based on utilization until the next maintenance activity. The obligation is adjusted to reflect any change in the
related maintenance expenses anticipated. Depending on the type of maintenance, utilization is determined based on the
cycles, logged flight time or time between overhauls. The excess of the maintenance obligation over maintenance deposits
made to lessors and unclaimed is included in liabilities under Provision for overhaul of leased aircraft. All maintenance work
done on aircraft engines under contracts with billing based on flight hours is charged to operating expenses in the statement
of income and expensed as incurred.
Employee future benefits
The Corporation offers defined benefit pension arrangements to certain senior executives. Certain non-Canadian employees
also benefit from post-employment benefits. The net periodic pension expense for these plans is actuarially determined on
an annual basis by independent actuaries using the projected unit credit method. The determination of benefit expense
requires assumptions such as the discount rate to measure obligations, expected mortality and expected rate of future
compensation. Actual results will differ from estimated results based on assumptions. The vested portion of past service
cost arising from plan amendments is recognized immediately in the statement of income. The unvested portion is amortized
on a straight-line basis over the average remaining period until the benefits vest.
The liability recognized in the consolidated statement of financial position is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized
past service costs. The present value of the defined benefit obligation is determined by discounting the estimated future
cash outflows using interest rates of high-quality corporate bonds that have terms to maturity approximating the term of the
related pension liability. All actuarial gains and losses that arise in calculating the present value of the defined benefit
obligation and the fair value of plan assets are recognized immediately in Retained earnings and included in the statement
of comprehensive income.
Contributions to defined contribution pension plans are expensed as incurred, which is as the related employee service
is rendered.
In certain jurisdictions, termination benefits are payable when employment is terminated by the Corporation before the
normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for the benefits. The
Corporation recognizes termination benefits when it is demonstrably committed to either terminating the employment of
current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits
as a result of an offer made to encourage voluntary redundancy.
Revenue recognition
The Corporation recognizes revenue when it satisfies the performance obligation, that is, when the service is transferred to
the customer and the customer obtains control of that service. Amounts received from customers for services not yet
rendered are included in current liabilities as Customer deposits and deferred revenues.
Revenue from contracts with customers includes revenue from passenger air transportation, revenue from the land portion
of holiday packages and commission revenue from travel agencies. Revenue from passenger air transportation is recognized
when such transportation is provided. Revenue from the land portion of holiday packages includes hotel services, among
others, and the related costs are recognized when the corresponding services are rendered over the course of the stay.
Commission revenue from travel agencies is recognized when passengers depart.
Other revenue includes, among others, aircraft subleasing, cargo and franchising revenue.
Revenue for which the Corporation provides multiple services, such as air transportation, hotel and travel agency services,
is recognized once the service is provided to the customer based on the Corporation’s accounting policy for revenue
recognition. These different services are considered as separate units of accounting, as each service has value to the
customer on a stand-alone basis, and the selling price is allocated using the expected cost plus a reasonable market
margin approach.
2019 Annual Report Transat A.T. Inc. | 63
Transat A.T. Inc.
Notes to Consolidated Financial Statements
BREAKDOWN OF REVENUE FROM CONTRACTS WITH CUSTOMERS
The Corporation has determined that it conducts its activities in a single industry segment, namely holiday travel. With
respect to geographic areas, the Corporation operates mainly in the Americas, and serves two main programs that also
represent its two main product lines: the transatlantic program and the Americas program, which includes the sun
destinations program.
CONTRACT BALANCES
Contract balances with customers are included in Trade and other receivables, Prepaid expenses and Customer deposits
and deferred revenues in the consolidated statement of financial position. Trade accounts receivable included under Trade
and other receivables comprise receivables related to passenger air transportation, the land portion of holiday packages and
commissions. Payment is generally received before services are provided, but some tour operators make payments after
services are provided. Contract assets in Prepaid expenses include additional costs incurred to earn revenue from contracts
with customers, consisting of hotel room costs, costs related to the worldwide distribution system and credit card fees.
These costs are capitalized upon payment and expensed when the related revenue is recognized. Customer deposits and
deferred revenues represent amounts received from customers for services not yet provided.
Given that contracts with customers have a duration of one year or less, the Corporation applies the practical expedient set
forth in paragraph 121 of IFRS 15, Revenue from Contracts with Customers, under which no information is disclosed about the
remaining performance obligations that are part of a contract that has a duration of one year or less.
Income taxes
The Corporation provides for income taxes using the liability method. Under this method, deferred tax assets and liabilities
are calculated based on differences between the carrying value and tax basis of assets and liabilities and measured using
substantively enacted tax rates and laws expected to be in effect when the differences reverse.
Deferred tax assets and liabilities are recognized directly through profit or loss, other comprehensive income (loss), or equity
based on the classification of the item to which they relate.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all
deductible temporary differences, carryforwards of unused tax credits and unused tax losses, to the extent that it is probable
that taxable income will be available against which the deductible temporary differences, and the carryforwards of unused
tax credits and unused tax losses can be utilized.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current
tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
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Transat A.T. Inc.
Notes to Consolidated Financial Statements
Share-based payment plans
The Corporation offers to certain employees various equity-settled and cash-settled share-based compensation plans under
which it receives services from employees.
EQUITY-SETTLED TRANSACTIONS
For equity-settled share-based compensation [stock option plan and performance share unit plan], including share-based
payment transactions with a net settlement feature to satisfy withholding tax obligations, the compensation expense is based
on the grant date fair value of the share-based awards expected to vest over the period in which the performance and/or
service conditions are fulfilled, with a corresponding increase in the share-based payment reserve. Compensation expense
related to the stock option plan is calculated using the Black-Scholes model, whereas the performance share unit expense
is measured based on the closing price of the shares of the Corporation on the Toronto Stock Exchange at the grant date
adjusted to take into account the terms and conditions upon which the units were granted. For awards with graded vesting,
the fair value of each tranche is recognized through profit or loss over its respective vesting period. Any consideration paid
by employees on exercising these awards and the corresponding portion previously credited to the share-based payment
reserve are credited to share capital.
CASH-SETTLED TRANSACTIONS
For cash-settled share-based compensation [deferred share unit plan and restricted share unit plan], the expense is
determined based on the fair value of the liability at the end of the reporting period until the award is settled. The value of
the compensation is measured based on the closing price of the shares of the Corporation on the Toronto Stock Exchange
adjusted to take into account the terms and conditions upon which the units were granted, and is based on the units that
are expected to vest. The expense is recognized over the period in which the performance or service conditions are satisfied.
At the end of each reporting period, the Corporation re-assesses its estimates of the number of awards that are expected
to vest and recognizes the impact of the revisions through profit or loss.
EMPLOYEE SHARE PURCHASE PLANS
The Corporation’s contributions to the employee share purchase plans [stock ownership incentive and capital accumulation
plan and permanent stock ownership incentive plan] consist of shares acquired in the marketplace by the Corporation. These
contributions are measured at cost and are recognized over the period from the acquisition date to the date that the award
vests to the participant. Any consideration paid by the participant to purchase shares under the share purchase plan is
credited to share capital.
Earnings per share
Basic earnings per share is computed based on net income attributable to shareholders of the Corporation, divided by the
weighted-average number of Class A Variable Voting Shares and Class B Voting Shares outstanding during the year.
Diluted earnings per share is calculated by adjusting net income attributable to shareholders of the Corporation for any
changes in income or expense that would result from the exercise of dilutive elements. The weighted-average number Class
A Variable Voting Shares and Class B Voting Shares outstanding is increased by the weighted-average number of additional
Class A Variable Voting Shares and Class B Voting Shares that would have been outstanding assuming the exercise of all
dilutive elements.
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Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 3
Significant accounting estimates and judgments
The preparation of consolidated financial statements requires management to make estimates and judgments about the
future. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. However, accounting estimates
could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in
future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year
are described below. The Corporation based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. However, existing circumstances and assumptions about future developments may
change due to market events or to circumstances beyond the Corporation’s control. Such changes are reflected in the
assumptions when they occur.
Depreciation and amortization and impairment of property, plant and equipment, goodwill and
intangible assets
Impairment exists when the carrying amount of an asset or CGU, in the case of goodwill, exceeds its recoverable amount,
which is the higher of fair value less costs to sell the asset or CGU and value in use. To identify CGUs, management has to
take into account the contributions made by each subsidiary and the inter-relationships among them in light of the
Corporation’s vertical integration and the goal of providing a comprehensive offering of tourism services in the markets
served by the Corporation. The fair value less costs to sell calculation is based on available data from arm’s length
transactions for similar assets or observable market prices less incremental costs to sell. The value in use calculation is based
on a discounted cash flow model. Cash flows are derived from the budget or financial forecasts for the next five fiscal years
and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that
will enhance the performance of the asset of the CGU being tested. The recoverable amount is most sensitive to the discount
rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for
extrapolation purposes. The key assumptions used to determine the recoverable amount for the various CGUs, including a
sensitivity analysis, are discussed in note 12.
Property, plant and equipment are depreciated over their estimated useful lives taking into account their residual value.
Aircraft, aircraft components and leasehold improvements account for a major subclass of property, plant and equipment.
Depreciation expense depends on several assumptions including the period over which the aircraft will be used, the fleet
renewal schedule and the estimate of the residual value of aircraft and aircraft components at the time of their
anticipated disposal.
Changes in estimated useful life and residual value of aircraft could have a significant impact on depreciation expense.
Property, plant and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable.
Fair value of derivative financial instruments
The fair value of derivative financial instruments is the amount for which the instrument could be exchanged between
knowledgeable, willing parties in an arm’s length transaction. The Corporation determines the fair value of its derivative
financial instruments using the purchase or selling price, as appropriate, in the most advantageous active market to which
the Corporation has immediate access. The Corporation also takes into account its own credit risk and the credit risk of the
counterparty in determining fair value for its derivative financial instruments based on whether they are financial assets or
financial liabilities. When the market for a derivative financial instrument is not active, the Corporation determines the fair
value by applying valuation techniques, such as using available information on market transactions involving other
instruments that are substantially the same, discounted cash flow analysis or other techniques, where appropriate. The
Corporation ensures, to the extent practicable, that its valuation technique incorporates all factors that market participants
would consider in setting a price and that it is consistent with accepted economic methods for pricing financial instruments,
including the credit risk of the party involved.
2019 Annual Report Transat A.T. Inc. | 66
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Provision for overhaul of leased aircraft
The estimates used to determine the provision for overhaul of leased aircraft are based on historical experience, historical
costs and repairs, information from external suppliers, forecasted aircraft utilization, planned renewal of the aircraft fleet,
leased aircraft return conditions, the U.S. dollar exchange rate and other facts and reasonable assumptions in the
circumstances. Given that various assumptions are used in determining the provision for overhaul of leased aircraft, the
calculation involves some inherent measurement uncertainty. Actual results will differ from estimated results based
on assumptions.
Non-controlling interest
A non-controlling interest, in respect of which the non-controlling shareholder may require the Corporation to buy back the
shares held, is reclassified as a liability at the estimated redemption value, thus assuming exercise of the option. The fair
value of the non-controlling interest in respect of which a shareholder holds an option entitling him to require the
Corporation to buy back his shares corresponds to its redemption price. The redemption price is based on a formula that
factors in financial indicators.
Employee future benefits
The cost of defined benefit pension plans and other post-employment benefits and the present value of the associated
obligations are determined using actuarial valuations. These actuarial valuations require the use of assumptions such as the
discount rate to measure obligations, expected mortality and expected rate of future compensation. Given that various
assumptions are used in determining the cost and obligations associated with employee future benefits, the actuarial
valuation process involves some inherent measurement uncertainty. Actual results will differ from estimated results based
on assumptions.
Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax legislation and the amount
and timing of future taxable income. Given the Corporation’s wide range of international business relationships, differences
arising between actual results and the assumptions made, or future changes in such assumptions, could give rise to future
adjustments in the amounts of income taxes previously reported. Such interpretive differences may arise in a variety of areas
depending on the conditions specific to the respective tax jurisdiction of the Corporation’s subsidiaries. The Corporation
establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the
respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of
previous tax audits and interpretations of tax regulations by the taxable entity and the responsible tax authority.
Deferred income tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will
be available against which the losses can be utilized. Significant judgment is required by management to determine the
amount of deferred income tax assets that can be recognized, based upon the likely timing and the level of future taxable
income together with future tax planning strategies.
2019 Annual Report Transat A.T. Inc. | 67
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 4 Changes in accounting policies
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments addresses the classification and measurement of financial assets and financial liabilities and
introduces a forward-looking expected loss impairment model as well as a substantially reformed approach to hedge
accounting. IFRS 9 supersedes IAS 39, Financial Instruments: Recognition and Measurement. The Corporation adopted IFRS 9
on November 1, 2018 with retrospective application and restatement of comparative figures. The main changes are
discussed below.
IFRS 9 uses a new approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the
many different rules in IAS 39. The approach recommended by IFRS 9 is based on how an entity manages its financial
instruments and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward in IFRS 9. Financial assets previously classified as
“loans and receivables” are now included in the “amortized cost” category. With respect to financial liabilities, trade and
other payables that were formerly classified as “other financial liabilities” are now included in the “amortized cost” category.
The Corporation has determined that this change has no other impact on its consolidated financial statements, particularly
with respect to the measurement of financial assets and financial liabilities.
IFRS 9 also introduces a new expected loss impairment model that requires timely recognition of expected credit losses.
Specifically, entities are required to account for expected credit losses when financial instruments are first recognized and
to recognize full lifetime expected credit losses on a timely basis. The Corporation has determined that this change has no
material impact on its consolidated financial statements.
Lastly, IFRS 9 introduces a new hedge accounting model, together with corresponding disclosure requirements regarding
risk management activities. The new hedge accounting model represents a substantial overhaul of hedge accounting that
enables entities to better reflect their risk management activities in their consolidated financial statements.
The Corporation applies the new hedge accounting model and foreign exchange risk management disclosure requirements
with prospective application as of November 1, 2018. The Corporation enters into foreign currency option contracts and
designates the intrinsic value of these contracts as cash flow hedges on future purchases of foreign currencies. Applying the
new hedge accounting model will give rise to the recognition of the time value of the options, including premiums paid, in
Other comprehensive income (loss) in the consolidated statement of comprehensive income (loss) for the effective hedging
relationships. The time value of these options, including premiums paid, remains in Accumulated other comprehensive
income (loss) as “Unrealized gain (loss) on cash flow hedges” until the settlement of the underlying hedged item, at which
time the premiums paid accounted for under “Unrealized gain (loss) on cash flow hedges” are reclassified under the same
account in the consolidated statement of income (loss) as the underlying hedged item. The Corporation’s hedging policy
remains unchanged with the exception of the above-mentioned modifications.
The Corporation separates the intrinsic value and time value of an option and designates as the hedging instrument only the
change in intrinsic value of an option; this method was also applied under IAS 39. Accordingly, for effective hedging
relationships in existence as at November 1, 2017 or designated thereafter, the Corporation is required to account for the
time value of the options retrospectively in Other comprehensive income (loss) in the consolidated statement of
comprehensive income (loss). The cumulative effect of the adoption of IFRS 9 on the consolidated statement of financial
position and the consolidated statement of income (loss) is disclosed below. The Corporation has determined that this
change had no other impact on its consolidated financial statements.
2019 Annual Report Transat A.T. Inc. | 68
Transat A.T. Inc.
Notes to Consolidated Financial Statements
IFRS 15, Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers, supersedes IAS 11, Construction Contracts, IAS 18, Revenue, and various
interpretations regarding revenue. IFRS 15 specifies the steps and timing of revenue recognition for issuers as well as
requiring them to provide relevant and more comprehensive disclosures. The core principle of IFRS 15 is that an entity should
recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that
reflects the expected consideration receivable in exchange for those goods or services. IFRS 15 was applied retrospectively
on November 1, 2018 with an adjustment to the opening consolidated statement of financial position as at November 1, 2017
and the consolidated statement of income (loss) for the year ended on October 31, 2018. The main changes are discussed
below.
The practical expedient of paragraph C5(d) of IFRS 15 was applied. For the periods before the date of initial application, the
Corporation does not need to disclose the amount of the transaction price allocated to the remaining performance
obligations or an explanation of when it expects to recognize that amount as revenue.
REVENUE FROM PASSENGER AIR TRANSPORTATION
Revenue from passenger air transportation is recognized when such transportation is provided. The adoption of IFRS 15 had
no impact on the recognition of revenue from passenger air transportation.
REVENUE FROM THE LAND PORTION OF HOLIDAY PACKAGES
Revenue from the land portion of holiday packages includes hotel services, among others, and the related costs are
recognized when the corresponding services are rendered over the course of the stay. Prior to the adoption of IFRS 15,
revenue was recognized when passengers departed. This change in accounting policy affects the timing of the recognition of
revenue and related expenses.
REVENUE FROM TRAVEL AGENCY COMMISSIONS
Commission revenue from travel agencies is recognized when passengers depart. Prior to the adoption of IFRS 15, these
revenues were recognized at the time of booking. This change in accounting policy affects the timing of revenue recognition.
REPORTING REVENUE GROSS OR NET
All airport taxes are reported net as a result of new criteria set out in IFRS 15. Prior to the adoption of IFRS 15, revenue related
to certain airport taxes were recognized on a gross basis. For the year ended October 31, 2018, the impact on the
consolidated statement of income (loss) consisted of a $156,430 decrease in revenue and the corresponding costs.
Prior to the adoption of IFRS 15, some revenues were reported net of commission costs, but are now reported gross, with
the corresponding commission costs reported under Selling and distribution costs. For the year ended October 31, 2018, the
impact on the consolidated statement of income (loss) consisted of a $12,955 increase in revenue and the corresponding
costs. This reclassification had no impact on operating results.
CONSOLIDATED STATEMENT OF INCOME (LOSS) PRESENTATION
Consolidated statement of income (loss) presentation was also modified to better reflect the nature of operating expenses.
Commissions, credit card fees, distribution costs and marketing costs are combined under Selling and distribution costs.
Formerly, credit card fees and distribution costs were reported under Costs of providing tourism services and marketing
costs were reported under Other costs. This change in consolidated statement of income (loss) presentation had no impact
on operating results.
2019 Annual Report Transat A.T. Inc. | 69
Transat A.T. Inc.
Notes to Consolidated Financial Statements
RECOGNIZING THE COSTS OF OBTAINING A CONTRACT
Certain additional costs incurred to earn income from air transportation services, such as costs related to the worldwide
distribution system and credit card fees, are capitalized at the time of booking and expensed when revenue is recognized.
Prior to the adoption of IFRS 15, some costs were expensed at the time of booking. This change in accounting policy affects
the timing of expense recognition.
IMPACT ON PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
The cumulative effect of the adoption of IFRS 9 and IFRS 15 on the consolidated statement of financial position and the
consolidated statement of income (loss) is detailed in the following tables. The cumulative effect on the consolidated
statement of cash flows was not material and as a result not reported:
Consolidated statement of financial position
Trade and other receivables
Prepaid expenses
Deferred tax assets
Total assets
Trade and other payables
Customer deposits and deferred revenues
Deferred tax liabilities
Total liabilities
Retained earnings
Unrealized gain (loss) on cash flow hedges
Total equity
Total liabilities and equity
Consolidated statement of financial position
Trade and other receivables
Prepaid expenses
Deferred tax assets
Total assets
Trade and other payables
Customer deposits and deferred revenues
Deferred tax liabilities
Total liabilities
Retained earnings
Unrealized gain (loss) on cash flow hedges
Total equity
Total liabilities and equity
Before
adjustments
$
121,618
64,245
16,286
1,453,216
245,013
433,897
2,217
898,246
327,562
4,532
554,970
1,453,216
Before
adjustments
$
140,009
63,789
14,850
1,561,615
326,621
510,631
2,019
993,086
329,895
9,732
568,529
1,561,615
As at October 31, 2017
After
adjustments
$
121,588
68,163
15,882
1,456,700
238,830
440,411
2,759
899,119
330,856
3,849
557,581
1,456,700
IFRS 15
$
(30)
3,918
(404)
3,484
(6,183)
6,514
542
873
2,611
—
2,611
3,484
As at October 31, 2018
After
adjustments
$
139,979
68,890
14,954
1,566,790
320,732
517,352
3,252
995,151
340,766
1,971
571,639
1,566,790
IFRS 15
$
(30)
5,101
104
5,175
(5,889)
6,721
1,233
2,065
3,110
—
3,110
5,175
IFRS 9
$
—
—
—
—
—
—
—
—
683
(683)
—
—
IFRS 9
$
—
—
—
—
—
—
—
—
7,761
(7,761)
—
—
2019 Annual Report Transat A.T. Inc. | 70
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Consolidated statement of income (loss)
Revenues
Costs of providing tourism services
Sales and distribution costs
Commission
Other
Total operating expenses
Operating income (loss)
Change in fair value of fuel-related derivatives
and other derivatives
Deferred income taxes
Net income (loss) for the period
Net income (loss) attribuable to shareholders
Earnings (loss) per share
Basic
Diluted
Before
adjustments
$
2,992,582
1,091,924
—
87,763
135,225
3,043,857
(51,275)
1,284
(1,204)
2,416
(1,126)
(0.03)
(0.03)
IFRS 9
$
—
—
—
—
—
—
—
(9,644)
2,566
7,078
7,078
0.19
0.19
Year ended October 31, 2018
After
adjustments
$
2,848,955
IFRS 15 Presentation
$
—
$
(143,627)
(155,544)
11,235
—
—
(144,309)
(73,275)
198,686
(87,763)
(37,648)
—
863,105
209,921
—
97,577
2,899,548
682
—
183
499
499
0.01
0.01
—
—
—
—
—
—
—
(50,593)
(8,360)
1,545
9,993
6,451
0.17
0.17
Note 5
Future changes in accounting policies
Standards issued but not yet effective are discussed below. The Corporation has not early adopted these new standards.
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16, Leases, which supersedes IAS 17, Leases. IFRS 16 introduces a single lessee
accounting model under which most of lease-related assets and liabilities are recognized in the statement of financial
position. For the lessor, substantially all the current accounting requirements remain unchanged.
Considering that the Corporation is committed under numerous operating leases in accordance with IAS 17, the adoption of
IFRS 16 will have a significant impact on its consolidated financial statements. The Corporation will be required to recognize
a right-of-use asset and a liability at the present value of future lease payments. Amortization of the right-of-use asset and
interest expense on the lease obligation will replace rent expense related to operating leases.
The application of IFRS 16 is mandatory and will be effective for the Corporation’s annual reporting period beginning on
November 1, 2019. The Corporation will apply the retrospective method with restatement for each prior reporting period
presented. The Corporation has elected to apply the permitted capitalization exemptions for short-term leases and leases
of low value assets.
The Corporation has completed the scoping exercise and lease review and is currently assessing the impact of the application
of IFRS 16 on the consolidated financial statements as at transition and for each quarter of the year ended October 31, 2019.
We have substantially concluded on the accounting policies described below and continue to assess their impact on the
consolidated financial statements, business processes and internal controls.
2019 Annual Report Transat A.T. Inc. | 71
Transat A.T. Inc.
Notes to Consolidated Financial Statements
AIRCRAFT LEASES
As at October 31, 2019, the Corporation operated 31 aircraft under operating leases [27 as at October 31, 2018] for which
right-of-use assets and lease obligations will be recognized upon application of IFRS 16; these aircraft are part of the
permanent fleet. During the winter season, the Corporation also has aircraft under operating leases for a period of
approximately six months; these aircraft are part of the seasonal fleet. The Corporation has elected to apply the provisions
of IFRS 16 for the seasonal fleet to continue to recognize the expenses associated with these leases under Aircraft rent on a
straight-line basis over the lease term.
For the permanent fleet, right-of-use assets will be broken down and eligible maintenance costs will be capitalized and
depreciated over the shorter of the lease term or expected useful life. In addition, eligible maintenance costs over the lease
term will be capitalized and depreciated over the shorter of the lease term or expected useful life. As a result, the
maintenance expense of leased aircraft will decrease and the depreciation expense will increase following the adoption of
IFRS 16. The Corporation is currently assessing the impact of this change on its consolidated financial statements.
All aircraft-related operating leases are denominated in U.S. dollars. The lease obligation in respect of leased aircraft and
the provision for return conditions are denominated in U.S. dollars and must be revalued at the prevailing exchange rate as
at the reporting date. Accordingly, the volatility of the foreign exchange gain (loss) recognized in the consolidated statements
of income (loss) will be higher upon application of IFRS 16.
REAL ESTATE LEASES
The Corporation is party to real estate leases, in particular for spaces in airports, offices and travel agencies. Right-of-use
assets and lease obligations will be recognized upon application of IFRS 16 in respect of such leases, except for short-term
leases and leases that include a substantial right of substitution.
OTHER LEASES
The Corporation is party to equipment leases, in particular for aircraft engines and automotive equipment. Right-of-use
assets and lease obligations will be recognized upon application of IFRS 16 in respect of such leases, except for short-term
leases and leases of low value assets.
PROVISION FOR RETURN CONDITIONS
Aircraft- and equipment-related leases contain obligations arising from the conditions under which the assets must be
returned to the lessor on expiry of the lease [the “return conditions”]. The Corporation will recognize a provision for the
return conditions of leased aircraft and engines upon application of IFRS 16. The Corporation will recognize the obligation
arising from the return conditions of leased aircraft and engines upon commencement of the lease based on the degree of
use until maintenance to meet the return condition or until expiry of the lease. The provision will be adjusted to reflect any
change in the related maintenance expenses anticipated.
The Corporation pays maintenance deposits to lessors based on the use of maintenance components. Deposits made
between the last maintenance performed by the Corporation and expiry of the lease will not be refunded to the Corporation
when the maintenance is performed. These deposits will be included in the provision for return conditions of leased aircraft
and engines.
IFRIC 23, Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments, which clarifies how to apply the recognition
and measurement requirements in IAS 12, Income Taxes, when there is uncertainty over income tax treatments. IFRIC 23 sets
out the circumstances in which uncertain tax treatments should be treated separately or together, and the assumptions to
consider in the assessment of an uncertain tax treatment to determine whether it is probable that a taxation authority will
accept the treatment. Application of IFRIC 23 will be effective for the Corporation’s annual reporting period beginning on
November 1, 2019. The Corporation is currently assessing the impact of the adoption of this new IFRIC interpretation on its
consolidated financial statements.
2019 Annual Report Transat A.T. Inc. | 72
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 6 Business disposal
Jonview Canada Inc.
On November 30, 2017, the Corporation completed the sale of its wholly owned subsidiary Jonview Canada Inc. [“Jonview”],
which has an incoming tour operator business in Canada, to Japanese multinational H.I.S. Co. Ltd., which specializes in travel
distribution, following approval of the transaction by the Competition Bureau of Canada and compliance with other
customary conditions. Under the terms of the agreement, the selling price amounted to $48,896. The disposed subsidiary’s
net assets amounted to $13,430 as at November 30, 2017. During the fiscal year ended October 31, 2018, the Corporation
recognized a gain on business disposal of $31,264. During the year ended October 31, 2019, the Corporation recorded a $289
downward adjustment to the gain on business disposal related to the amount claimed by H.I.S. Co. Ltd. for uncollected trade
receivables as at May 31, 2019. As at October 31, 2018, an amount of $2,200 was receivable under certain contractual
conditions; this amount was received during the year ended October 31, 2019, net of the amount claimed by H.I.S. Co. Ltd.
Since Jonview’s operations do not represent a principal and separate line of business for the Corporation, its results are
included in the Corporation’s net income from continuing operations reported in the consolidated statements of income
(loss) and comprehensive income for the year ended October 31, 2018.
Note 7 Cash and cash equivalents in trust or otherwise reserved
As at October 31, 2019, cash and cash equivalents in trust or otherwise reserved included $292,134 [$276,038 as at
October 31, 2018] in funds received from customers, primarily Canadians, for services not yet rendered or for which the
restriction period had not ended, in accordance with Canadian regulators and the Corporation’s business agreements with
certain credit card processors. Cash and cash equivalents in trust or otherwise reserved also included $60,637, $51,224 of
which was recorded as non-current assets [$62,881 as at October 31, 2018, $51,184 of which was recorded as non-current
assets], which was pledged as collateral security against letters of credit [see note 24].
Note 8
Trade and other receivables
Trade receivables
Government receivables
Cash receivable from lessors
Other receivables
2019
$
2018
Restated
[note 4]
$
25,669
21,863
71,557
18,360
30,831
22,177
67,027
19,944
137,449
139,979
2019 Annual Report Transat A.T. Inc. | 73
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 9
Financial instruments
Classification of financial instruments
The classification of financial instruments and their carrying amounts and fair values are detailed as follows:
As at October 31, 2019
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust or
otherwise reserved
Trade and other receivables
Deposits on leased aircraft and engines
Derivative financial instruments
-Fuel purchasing forward contracts and
other fuel-related derivative
financial instruments
-Other foreign currency derivatives
Financial liabilities
Trade and other payables
Derivative financial instruments
-Fuel purchasing forward contracts and
other fuel-related derivative
financial instruments
-Other foreign currency derivatives
Non-controlling interest
Carrying amount
Fair value
through other
comprehensive
income Amortized cost
Fair value
through net
income
$
—
—
—
—
564,844
352,771
—
—
$
Total
$
Fair value
$
—
564,844
564,844
—
115,586
38,415
352,771
115,586
38,415
352,771
115,586
38,415
407
1,565
919,587
—
2,898
2,898
—
—
154,001
407
4,463
1,076,486
407
4,463
1,076,486
—
—
238,925
238,925
238,925
6,222
2,621
38,300
47,143
—
3,238
—
3,238
—
—
—
238,925
6,222
5,859
38,300
289,306
6,222
5,859
38,300
289,306
2019 Annual Report Transat A.T. Inc. | 74
Transat A.T. Inc.
Notes to Consolidated Financial Statements
As at October 31, 2018
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust or
otherwise reserved
Trade and other receivables
Deposits on leased aircraft and engines
Derivative financial instruments
-Fuel purchasing forward contracts and
other fuel-related derivative
financial instruments
-Other foreign currency derivatives
Financial liabilities
Trade and other payables
Derivative financial instruments
-Fuel purchasing forward contracts and
other fuel-related derivative
financial instruments
-Other foreign currency derivatives
Non-controlling interest
Carrying amount
Fair value
through other
comprehensive
income Amortized cost
$
$
Total
$
Fair value
$
—
—
—
—
—
593,654
593,654
—
117,802
34,874
338,919
117,802
34,874
338,919
117,802
34,874
Fair value
through net
income
593,654
338,919
—
—
6,873
—
939,446
—
13,624
13,624
—
—
152,676
6,873
13,624
1,105,746
6,873
13,624
1,105,746
—
—
243,718
243,718
243,718
844
—
48,700
49,544
—
2,601
—
2,601
—
—
—
243,718
844
2,601
48,700
295,863
844
2,601
48,700
295,863
Determination of fair value of financial instruments
The fair value of financial instruments is the amount for which the instrument could be exchanged between knowledgeable,
willing parties in an arm’s length transaction. The following methods and assumptions were used to measure fair value:
The fair value of cash and cash equivalents, in trust or otherwise reserved or not, trade and other receivables, and accounts
liabilities approximates their carrying amount due to the short-term maturity of these
payable and accrued
financial instruments.
The fair value of forward purchase contracts and other derivative financial instruments related to fuel or currencies is
measured using a generally accepted valuation method, i.e., by discounting the difference between the value of the contract
at expiration determined according to contract price or rate and the value of the contract at expiration determined according
to contract price or rate that the financial institution would have used had it renegotiated the same contract under the same
conditions at the current date. The Corporation also factors in the financial institution’s credit risk when determining the
value of financial assets and its own credit risk when determining the value of financial liabilities.
The fair value of deposits on leased aircraft and engines approximates their carrying amount given that they are subject to
terms and conditions similar to those available to the Corporation for instruments with comparable terms.
The fair value of the non-controlling interest in respect of which a shareholder holds an option entitling him to require the
Corporation to buy back his shares corresponds to its redemption price. The redemption price is based on a formula that
factors in financial indicators.
2019 Annual Report Transat A.T. Inc. | 75
Transat A.T. Inc.
Notes to Consolidated Financial Statements
The following table details the fair value hierarchy of financial instruments by level:
As at October 31, 2019
Financial assets
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other
foreign currency derivatives
Financial liabilities
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other
foreign currency derivatives
Non-controlling interest
As at October 31, 2018
Financial assets
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other
foreign currency derivatives
Financial liabilities
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other
foreign currency derivatives
Non-controlling interest
Quoted prices
in active
markets
(Level 1)
$
Other
observable
inputs
(Level 2)
$
Unobservable
inputs
(Level 3)
$
—
—
—
—
—
—
—
407
4,463
4,870
6,222
5,859
—
12,081
—
—
—
—
—
38,300
38,300
Quoted prices
in active
markets
(Level 1)
$
Other
observable
inputs
(Level 2)
$
Unobservable
inputs
(Level 3)
$
—
—
—
—
—
—
—
6,873
13,624
20,497
844
2,601
—
3,445
—
—
—
—
—
48,700
48,700
Total
$
407
4,463
4,870
6,222
5,859
38,300
50,381
Total
$
6,873
13,624
20,497
844
2,601
48,700
52,145
2019 Annual Report Transat A.T. Inc. | 76
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Non-controlling interest
The minority shareholder of the subsidiary Trafictours Canada Inc. could require that the Corporation purchase its
Trafictours Canada Inc. shares at a price equal to a pre-determined formula, subject to adjustment according to the
circumstances, payable in cash. The fair value of this option is taken into account in the carrying amount of the
non-controlling interest.
The change in the non-controlling interest is as follows:
Balance, beginning of year
Net income
Other comprehensive income
Dividends
Change in fair value of non-controlling interest
2019
$
48,700
2,647
1
(2,892)
(10,156)
38,300
2018
$
49,300
3,542
995
(3,302)
(1,835)
48,700
Management of risks arising from financial instruments
In the normal course of business, the Corporation is exposed to credit and counterparty risk, liquidity risk and market risk
arising from changes in certain foreign exchange rates, changes in fuel prices and changes in interest rates. The Corporation
manages these risk exposures on an ongoing basis. In order to limit the effects of changes in foreign exchange rates, fuel
prices and interest rates on its revenues, expenses and cash flows, the Corporation can avail itself of various derivative
financial instruments. The Corporation’s management is responsible for determining the acceptable level of risk and only
uses derivative financial instruments to manage existing or anticipated risks, commitments or obligations based on its
past experience.
Credit and counterparty risk
Credit risk is primarily attributable to the potential inability of customers, service providers, aircraft and engine lessors and
financial institutions, including the other counterparties to cash equivalents and derivative financial instruments, to
discharge their obligations.
Trade accounts receivable included under Trade and other receivables in the consolidated statement of financial position
totalled $25,669 as at October 31, 2019 [$30,831 as at October 31, 2018]. Trade accounts receivable consist of a large number
of customers, including travel agencies. Trade accounts receivable generally result from the sale of vacation packages to
individuals through travel agencies and the sale of seats to tour operators dispersed over a wide geographic area. No
customer represented more than 10% of total accounts receivable as at October 31, 2019 and 2018. As at October 31, 2019,
approximately 7% [approximately 6% as at October 31, 2018] of accounts receivable were over 90 days past due, whereas
approximately 90% [approximately 80% as at October 31, 2018] were current, that is, under 30 days. Historically, the
Corporation has not incurred any significant losses in respect of its trade receivables. Therefore, the allowance for doubtful
accounts at the end of each period and the change recorded for each period is insignificant.
Pursuant to certain agreements entered into with its service providers consisting primarily of hotel operators, the
Corporation pays deposits to capitalize on special benefits, including pricing, exclusive access and room allotments. These
deposits totalled $20,576 as at October 31, 2019 [$27,118 as at October 31, 2018]. These deposits are offset by purchases of
person-nights at these hotels. Risk arises from the fact that these hotels might not be able to honour their obligations to
provide the agreed number of person-nights. The Corporation strives to minimize its exposure by limiting deposits to
recognized and reputable hotel operators in its active markets. These deposits are spread across a large number of hotels
and, historically, the Corporation has not been required to write off a considerable amount for its deposits with suppliers.
2019 Annual Report Transat A.T. Inc. | 77
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Under the terms of its aircraft and engine leases, the Corporation pays deposits when aircraft and engines are commissioned,
particularly as collateral for remaining lease payments. These deposits totalled $38,414 as at October 31, 2019 [$34,874 as at
October 31, 2018] and are returned as leases expire. The Corporation is also required to pay cash security deposits to lessors
over the lease term to guarantee the serviceable condition of aircraft. Cash security deposits with lessors are generally
returned to the Corporation upon receipt of documented proof that the related maintenance has been performed by the
Corporation. As at October 31, 2019, the cash security deposits with lessors that have been claimed totalled $71,557 [$67,027
as at October 31, 2018] and are included in Trade and other receivables. Historically, the Corporation has not written off any
significant amount of deposits and claims for cash security deposits with aircraft and engine lessors.
For financial institutions including the various counterparties, the maximum credit risk as at October 31, 2019 relates to cash
and cash equivalents, including cash and cash equivalents in trust or otherwise reserved, and derivative financial instruments
accounted for in assets. These assets are held or traded with a limited number of financial institutions and other
counterparties. The Corporation is exposed to the risk that the financial institutions and other counterparties with which it
holds securities or enters into agreements could be unable to honour their obligations. The Corporation minimizes risk by
entering into agreements only with large financial institutions and other large counterparties with appropriate credit ratings.
The Corporation’s policy is to invest solely in products that are rated R1-Mid or better (by Dominion Bond Rating Service
[“DBRS”]), A1 (by Standard & Poor’s) or P1 (by Moody’s) and rated by at least two rating firms. Exposure to these risks is closely
monitored and maintained within the limits set out in the Corporation’s various policies. The Corporation revises these
policies on a regular basis.
The Corporation does not believe it is exposed to a significant concentration of credit risk as at October 31, 2019.
Liquidity risk
The Corporation is exposed to the risk of being unable to honour its financial commitments by the deadlines set out under
the terms of such commitments and at a reasonable price. The Corporation has a Treasury Department in charge, among
other things, of ensuring sound management of available cash resources, financing and compliance with deadlines within the
Corporation’s scope of consolidation. With senior management’s oversight, the Treasury Department manages the
Corporation’s cash resources based on financial forecasts and anticipated cash flows. The Corporation has implemented an
investment policy designed to safeguard its capital and instrument liquidity and generate a reasonable return. The policy sets
out the types of allowed investment instruments, their concentration, acceptable credit rating and maximum maturity.
The maturities of the Corporation’s financial liabilities as at October 31, 2019 are summarized in the following table:
Maturing in
under 1 year
$
238,925
38,300
10,543
287,768
Maturing in
1 to 2 years
$
—
—
1,650
1,650
Maturing in
2 to 5 years
$
—
—
—
—
Contractual
cash flows
Total
$
238,925
38,300
12,193
289,418
Carrying
amount
Total
$
238,925
38,300
12,081
289,306
Accounts payable and accrued liabilities
Non-controlling interest
Derivative financial instruments
Total
Market risk
FOREIGN EXCHANGE RISK
The Corporation is exposed to foreign exchange risk, primarily as a result of its many arrangements with foreign-based
suppliers, aircraft and engine leases, fuel purchases, long-term debt and revenues in foreign currencies, and fluctuations in
exchange rates mainly with respect to the U.S. dollar, the euro and the pound sterling against the Canadian dollar and the
euro, as the case may be. Approximately 74% of the Corporation’s costs are incurred in a currency other than the
measurement currency of the reporting unit incurring the costs, whereas approximately 19% of revenues are earned in a
currency other than the measurement currency of the reporting unit making the sale. In accordance with its foreign currency
risk management policy and to safeguard the value of anticipated commitments and transactions, the Corporation enters
into foreign exchange forward contracts and other types of derivative financial instruments, expiring in generally less than
18 months, for the purchase and/or sale of foreign currencies based on anticipated foreign exchange rate trends.
2019 Annual Report Transat A.T. Inc. | 78
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Expressed in Canadian dollar terms, the net financial assets and net financial liabilities of the Corporation and its subsidiaries
denominated in currencies other than the measurement currency of the financial statements as at October 31, based on
their financial statement measurement currency, are summarized in the following tables:
Net assets (liabilities)
2019
Financial statement
measurement currency of the
group’s companies
Euro
Pound sterling
Canadian dollar
Other currencies
Total
Net assets (liabilities)
2018
Financial statement
measurement currency of the
group’s companies
Euro
Pound sterling
Canadian dollar
Other currencies
Total
U.S. dollar
$
Euro
$
Pound
sterling
$
Canadian
dollar
$
Other
currencies
$
Total
$
1
2
22,805
(182)
22,626
—
339
(9,763)
6
(9,418)
—
—
58
—
58
—
39,684
—
(6)
39,678
—
—
3,972
(433)
3,539
U.S. dollar
$
Euro
$
Pound
sterling
$
Canadian
dollar
$
Other
Currencies
$
6
(94)
43,995
(911)
42,996
—
201
(9,413)
27
(9,185)
—
—
10,222
—
10,222
—
(1,759)
—
13
(1,746)
—
—
367
597
964
1
40,025
17,072
(615)
56,483
Total
$
6
(1,652)
45,171
(274)
43,251
For the year ended October 31, 2019, a 1% rise or fall in the Canadian dollar against the other currencies, assuming that all
other variables had remained the same, would have resulted in an $3,993 increase or decrease [$854 in 2018], respectively,
in the Corporation’s net loss for the year, whereas other comprehensive loss would have decreased or increased by $4,998
[$4,146 in 2018], respectively. For sensitivity analysis purposes, the impact of any single currency on the Corporation’s income
would not be material.
As at October 31, 2019, 63% of estimated requirements for fiscal 2020 were covered by foreign exchange derivatives [58% of
estimated requirements for fiscal 2019 were covered as at October 31, 2018].
RISK OF FLUCTUATIONS IN FUEL PRICES
The Corporation is particularly exposed to fluctuations in fuel prices. Due to competitive pressures in the industry, there can
be no assurance that the Corporation would be able to pass along any increase in fuel prices to its customers by increasing
prices, or that any eventual price increase would fully offset higher fuel costs, which could in turn adversely impact its
business, financial position or operating results. To mitigate fuel price fluctuations, the Corporation has implemented a fuel
price risk management policy that authorizes foreign exchange forward contracts, and other types of derivative financial
instruments, expiring in generally less than 18 months.
For the year ended October 31, 2019, a 10% increase or decrease in fuel prices, assuming that all other variables had remained
the same, would have resulted in a $6,842 decrease or increase [$4,283 in 2018], respectively, in the Corporation’s net loss
for the year.
As at October 31, 2019, 41% of estimated requirements for fiscal 2020 were covered by fuel-related derivative financial
instruments [44% of estimated requirements for fiscal 2019 were covered as at October 31, 2018].
2019 Annual Report Transat A.T. Inc. | 79
Transat A.T. Inc.
Notes to Consolidated Financial Statements
INTEREST RATE RISK
The Corporation is exposed to interest rate fluctuations, primarily due to its variable-rate credit facility. The Corporation
manages its interest rate exposure and could potentially enter into swap agreements consisting in exchanging variable rates
for fixed rates.
Furthermore, interest rate fluctuations could have an effect on the Corporation’s interest income derived from its cash and
cash equivalents.
For the year ended October 31, 2019, a 25 basis point increase or decrease in interest rates, assuming that all other variables
had remained the same, would have resulted in a $2,301 increase or decrease [$2,392 in 2018], respectively, in the
Corporation’s net loss.
CAPITAL RISK MANAGEMENT
The Corporation’s capital management objectives are first to ensure the longevity of the Corporation so as to support its
continued operations, provide its shareholders with a return, generate benefits for its other stakeholders and maintain the
most optimal capitalization possible with a view to keeping capital costs to a minimum.
The Corporation manages its capitalization in accordance with changes in economic conditions. In order to maintain or adjust
its capitalization, the Corporation may elect to declare dividends to shareholders, return capital to its shareholders and
repurchase its shares in the marketplace or issue new shares.
The Corporation monitors its capitalization using the adjusted debt/equity ratio. This ratio is calculated by dividing net debt
by equity. Net debt is equal to the aggregate of long-term debt and obligations under adjusted operating leases, less cash
and cash equivalents [not held in trust or otherwise reserved]. The amount of adjusted operating leases is equal to the
annualized aircraft rental expense multiplied by 5.0, a factor used in the industry. Although commonly used, this measure
does not reflect the fair value of operating leases as it does not take into account the remaining contractual payments, the
discount rates implicit in the leases or current rates for similar obligations with similar terms and risks.
The Corporation’s strategy is to maintain its adjusted debt/equity ratio below 1. The calculation of the adjusted debt/equity
ratio is summarized as follows:
Net debt
Long-term debt
Adjusted operating leases
Cash and cash equivalents
Equity
Adjusted debt/equity ratio
2019
$
2018
$
—
718,920
(564,844)
154,076
534,783
28.8%
—
622,270
(593,654)
28,616
571,639
5.0%
The Corporation’s credit facilities are subject to certain covenants including a debt/equity ratio and a fixed-charge coverage
ratio. These ratios are monitored by management and submitted to the Corporation’s Board of Directors on a quarterly basis.
As at October 31, 2019, the Corporation was in compliance with these ratios. Except for the credit facility covenants, the
Corporation is not subject to any third-party capital requirements.
2019 Annual Report Transat A.T. Inc. | 80
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 10 Deposits
Deposits on leased aircraft and engines
Deposits with suppliers
Less current portion
Note 11 Property, plant and equipment
2019
$
38,415
20,576
58,991
17,765
41,226
2018
$
34,874
27,118
61,992
20,250
41,742
Cost
Balance as at October 31, 2018
Additions
Write-offs
Exchange difference
Balance as at October 31, 2019
Accumulated depreciation
Balance as at October 31, 2018
Depreciation
Write-offs
Exchange difference
Balance as at October 31, 2019
Net book value as at October 31, 2019
Cost
Balance as at October 31, 2017
Additions
Write-offs
Exchange difference
Balance as at October 31, 2018
Accumulated depreciation
Balance as at October 31, 2017
Depreciation
Write-offs
Exchange difference
Balance as at October 31, 2018
Net book value as at October 31, 2018
Aircraft
equipment
$
Office
furniture and
equipment
$
Land, building
and leasehold
improvements
$
118,679
27,730
(21,307)
—
125,102
88,238
7,786
(21,307)
—
74,717
50,385
53,102
10,634
(3,601)
(98)
60,037
38,335
5,711
(3,601)
(57)
40,388
19,649
96,123
19,926
(352)
(139)
115,558
27,598
1,930
(352)
(9)
29,167
86,391
Aircraft
equipment
$
Office
furniture and
equipment
$
Building and
leasehold
improvements
$
106,800
11,879
—
—
118,679
83,106
5,132
—
—
88,238
30,441
57,799
6,941
(11,529)
(109)
53,102
44,523
5,265
(11,529)
76
38,335
14,767
33,222
62,563
(72)
410
96,123
25,790
1,883
(72)
(3)
27,598
68,525
Fleet
$
339,093
24,807
(35,163)
—
328,737
251,348
33,816
(35,163)
—
250,001
78,736
Fleet
$
343,567
29,954
(34,428)
—
339,093
253,297
32,479
(34,428)
—
251,348
87,745
Total
$
606,997
83,097
(60,423)
(237)
629,434
405,519
49,243
(60,423)
(66)
394,273
235,161
Total
$
541,388
111,337
(46,029)
301
606,997
406,716
44,759
(46,029)
73
405,519
201,478
2019 Annual Report Transat A.T. Inc. | 81
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 12
Intangible assets
Cost
Balance as at October 31, 2018
Additions
Exchange difference
Balance as at October 31, 2019
Accumulated amortization and impairment
Balance as at October 31, 2018
Amortization
Exchange difference
Balance as at October 31, 2019
Net book value as at October 31, 2019
Cost
Balance as at October 31, 2017
Additions
Write-offs and impairment
Exchange difference
Balance as at October 31, 2018
Accumulated amortization and impairment
Balance as at October 31, 2017
Amortization
Write-offs and impairment
Exchange difference
Balance as at October 31, 2018
Net book value as at October 31, 2018
Impairment test in 2019
Software
$
Trademarks Customer lists
$
$
Total
$
153,709
9,088
3
162,800
115,695
15,010
5
130,710
32,090
20,334
—
47
20,381
15,809
—
—
15,809
4,572
12,574
92
123
12,789
12,424
52
123
12,599
190
Software
$
Trademarks Customer lists
$
$
148,028
7,587
(1,781)
(125)
153,709
103,021
14,445
(1,781)
10
115,695
38,014
20,406
—
—
(72)
20,334
15,809
—
—
—
15,809
4,525
12,219
129
—
226
12,574
12,219
44
—
161
12,424
150
186,617
9,180
173
195,970
143,928
15,062
128
159,118
36,852
Total
$
180,653
7,716
(1,781)
29
186,617
131,049
14,489
(1,781)
171
143,928
42,689
The Corporation performed its annual impairment test as at April 30, 2019 to determine whether the carrying amount of
trademarks was higher than their recoverable amount. Following this impairment test, the Corporation did not identify any
impairment of its trademarks, which totalled $4,572 as at October 31, 2019.
The recoverable amount is determined based on value in use, using the royalty capitalization method. The Corporation
prepares cash flow forecasts based on pre-established royalty rates, which represent what a third party would pay to use
the trademark. The cash flow forecasts, which correspond to after-tax royalties, are then discounted.
As at April 30, 2019, after-tax discount rates used for impairment testing for trademarks ranged from 10.0% to 18.0%
[between 10.0% and 18.0% as at April 30, 2018].
On April 30, 2019, a 1% increase in the after-tax discount rate used for impairment testing, assuming that all other variables
had remained the same, would not have resulted in any impairment charge.
On April 30, 2019, a 10% decrease in the cash flows used for the impairment testing, assuming that all other variables had
remained the same, would not have resulted in any impairment charge.
As at October 31, 2019, there was no indication that the conclusions of the test might have changed since April 30, 2019.
2019 Annual Report Transat A.T. Inc. | 82
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 13
Investment
The Corporation holds a 50% interest in Desarrollo Transimar, a Mexican company operating a hotel, the Marival Armony.
This interest in a joint venture is accounted for using the equity method.
The change in the investment in Desarrollo Transimar is detailed as follows:
Balance, beginning of year
Capital contribution
Share of net loss
Translation adjustment
2019
$
16,084
1,690
(1,250)
9
16,533
2018
$
15,888
—
(105)
301
16,084
The investment was translated at the USD/CAD rate of 1.3142 as at October 31, 2019 [1.3130 as at October 31, 2018].
The following table shows the condensed financial information regarding Desarrollo Transimar as at October 31, 2019 and
2018:
Statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Carrying amount of investment
Statement of comprehensive income:
Revenues
Net loss and comprehensive loss
Share of net income (loss)
Note 14 Other assets
Deferred rent
Sundry
2019
$
2018
$
8,863
93,287
7,214
62,063
32,873
16,437
13,341
52,761
1,272
32,662
32,168
16,084
6,370
(2,500)
(1,250)
4,558
(210)
(105)
2019
$
33,733
322
34,055
2018
$
26,499
186
26,685
2019 Annual Report Transat A.T. Inc. | 83
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 15 Trade and other payables
Trade payables
Accrued expenses
Salaries and employee benefits payable
Government remittances
Non-controlling interest [note 9]
2019
$
2018
Restated
[note 4]
$
128,522
21,939
88,464
38,170
38,300
315,395
146,393
33,824
63,501
28,314
48,700
320,732
Note 16 Provision for overhaul of leased aircraft
The provision for overhaul of leased aircraft relates to the maintenance obligation for leased aircraft and spare parts used
by the Corporation’s airline under operating leases. The change in the provision for overhaul of leased aircraft for the year
ended October 31, 2019 is detailed as follows:
Balance as at October 31, 2018
Additional provisions
Utilization of provisions
Balance as at October 31, 2019
Current provisions
Non-current provisions
Balance as at October 31, 2019
Note 17 Long-term debt
$
57,228
31,530
(30,510)
58,248
27,151
31,097
58,248
The Corporation has a $50,000 revolving credit facility agreement for operating purposes. Under the agreement, which
expires in 2022, the Corporation may increase the credit limit to $100,000, subject to lender approval. The agreement may
be extended for a year on each anniversary date subject to lender approval and the balance becomes immediately payable
in the event of a change in control. Under the terms of the agreement, funds may be drawn down by way of bankers’
acceptances or bank loans, denominated in Canadian dollars, U.S. dollars, euros or pounds sterling. The agreement is secured
by a first movable hypothec on the universality of assets, present and future, of the Corporation’s Canadian subsidiaries,
subject to certain exceptions, and is further secured by the pledging of certain marketable securities of its main European
subsidiaries. The credit facility bears interest at the bankers’ acceptance rate, the financial institution’s prime rate or LIBOR,
plus a premium. The terms of the agreements require the Corporation to comply with certain financial ratios and conditions.
As at October 31, 2019 and 2018, all financial ratios and conditions were met and the credit facility was undrawn.
The Corporation also has a $75,000 annually renewable revolving credit facility in respect of which the Corporation must
pledge cash totalling 100% of the amount of the issued letters of credit as collateral security. As at October 31, 2019, $55,848
had been drawn down under the facility [$56,151 as at October 31, 2018], $51,224 of which was to secure obligations under
senior executive defined benefit pension agreements; this irrevocable letter of credit is held by a third-party trustee. In the
event of a change of control, the irrevocable letter of credit issued to secure obligations under senior executive defined
benefit pension agreements will be drawn down.
Note 18 Other liabilities
Employee benefits [note 24]
Deferred lease inducements
2019
$
46,986
50,512
97,498
2018
$
40,388
51,637
92,025
2019 Annual Report Transat A.T. Inc. | 84
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 19 Equity
Authorized share capital
CLASS A VARIABLE VOTING SHARES
An unlimited number of participating Class A Variable Voting Shares [“Class A Shares”] which may be owned or controlled
only by non-Canadians as defined by the Canada Transportation Act [“CTA”].
Following the entry into force, on May 8, 2019, of the plan of arrangement approved by the Corporation’s shareholders and
the Superior Court of Québec, the Class A Shares carry one vote per share at any meeting of shareholders subject to an
automatic reduction of the voting rights attached thereto in the event that [i] any non-Canadian, individually or with persons
of the same group, holds more than 25% of the votes cast, [ii] any non-Canadian authorized to provide an air service in any
jurisdiction (in aggregate) holds more than 25% of the votes cast, or [iii] the votes that would be cast by holders of Class A
Shares would be more than 49%. If any of the above-mentioned applicable limitations are exceeded, the votes that should
be attributed to holders of Class A Shares will be attributed as follows:
first, if applicable, there will be a reduction in the voting rights of any non-Canadian individual (including a
non-Canadian authorized to provide an air service) whose votes total more than 25% of the votes cast, so
that such non-Canadian holder may never hold more than 25% (or such other percentage as may be
prescribed by an act or regulation of Canada and approved or adopted by the directors of the Corporation)
of the total votes cast at a meeting;
next, if applicable, and once the pro rata distribution as described above is made, a further pro rata reduction
will be made in the voting rights of all holders of Class A non-Canadian Shares authorized to provide an air
service, so that such non-Canadian holders may never hold votes totalling more than 25% (or such other
percentage as may be prescribed by law or regulation of Canada and approved or adopted by the directors
of the Corporation) of the total votes cast, all classes combined, at a meeting;
last, if applicable, and once the two pro rata allocations described above have been made, a proportional
reduction will be made in the voting rights of all holders of Class A Shares, so that all non-Canadian holders
of Class A Shares may never hold votes totalling more than 49% (or such other percentage as may be
prescribed by law or regulation of Canada and approved or adopted by the directors of the Corporation) of
the total votes cast, all classes combined, at a meeting.
Each issued and outstanding Class A Share shall be automatically converted into one Class B Voting Share without any further
action on the part of the Corporation or of the holder if [i] the Class A Share is or becomes owned or controlled by a Canadian
as defined by the CTA; or [ii] the provisions contained in the CTA relating to foreign ownership restrictions are repealed and
not replaced with other similar provisions.
CLASS B VOTING SHARES
An unlimited number of Class B Voting Shares [“Class B Shares”], participating, which may be owned and controlled only by
Canadians as defined by the CTA and shall confer the right to one vote per Class B Share at all meetings of shareholders of
the Corporation. Each issued and outstanding Class B Share shall be converted into one Class A Share automatically without
any further action on the part of the Corporation or the holder if the Class B Share is or becomes owned or controlled by a
non-Canadian as defined by the CTA.
PREFERRED SHARES
An unlimited number of preferred shares, non-voting, issuable in series, each series bearing the number of shares,
designation, rights, privileges, restrictions and conditions as determined by the Board of Directors.
2019 Annual Report Transat A.T. Inc. | 85
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Issued and outstanding share capital
The changes affecting Class A Shares and Class B Shares were as follows:
Balance as at October 31, 2017
Issued from treasury
Exercise of options
Balance as at October 31, 2018
Issued from treasury
Exercise of options
Balance as at October 31, 2019
Number of shares
37,063,626
188,785
292,924
37,545,335
169,862
31,893
$
215,444
1,555
2,685
219,684
940
388
37,747,090
221,012
As at October 31, 2019, the number of Class A Shares and Class B Shares was 4,243,821 and 33,503,269, respectively
[2,931,020 and 34,614,315, respectively, as at October 31, 2018].
Subscription rights plan
The shareholders’ subscription rights plan [the “rights plan”] entitles holders of Class A Shares and Class B Shares to acquire,
under certain conditions, additional shares at a price equal to 50% of their market value at the time the rights are exercised.
The rights plan is designed to give the Board of Directors time to consider alternatives, thus allowing shareholders to receive
full and fair value for their shares. The time limit for a permitted bid under the rights plan is 105 days. The rights plan will
terminate on the day after the 2020 annual general meeting, unless terminated prior to said annual general meeting.
Stock option plan
Under the stock option plan, the Corporation may grant up to a maximum of 829,196 additional Class A Shares or Class B
Shares to eligible persons at a share price equal to the weighted average price of the shares during the five trading days prior
to the option grant date. The option exercise period and the performance criteria are determined on each grant. The options
granted between January 14, 2009 and October 31, 2015 are exercisable in three tranches of 33.33% as of mid-December of
each year following the grant, provided the performance criteria determined on each grant are met. For options granted
starting November 1, 2015, vesting will no longer depend on meeting performance criteria. The options granted before
October 31, 2013 are exercisable over a ten-year period, whereas those granted after that date are exercisable over a seven-
year period, respectively. Provided the performance criteria set on grant date are met, the exercise of any non-vested
tranche of options during the first three years following the grant date due to the performance criteria not being met may
be extended three years. Under the plan, in the event of a change of control, all outstanding stock options vest.
The following tables summarize all outstanding options:
Beginning of year
Granted
Exercised
Cancelled
Expired
End of year
Options exercisable, end of year
2019
2018
Number of
options
1,786,588
—
(31,893)
(4,125)
(2,000)
1,748,570
1,471,592
Weighted
average
price
$
10.13
—
8.41
15.76
10.52
10.15
10.05
Number of
options
2,246,032
157,735
(292,924)
(160,801)
(163,454)
1,786,588
1,412,111
Weighted
average
price
$
10.57
10.94
6.40
13.43
20.46
10.13
10.03
2019 Annual Report Transat A.T. Inc. | 86
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Range of exercise price
$
6.01 to 7.48
8.73 to 11.22
12.25 to 12.49
19.24
Outstanding options
Options exercisable
Number of options
outstanding as at
October 31, 2019
Weighted
average
remaining
life
572,758
620,269
455,493
100,050
1,748,570
2.6
2.8
0.9
1.2
2.1
Weighted
average
price
$
6.87
10.07
12.37
19.24
10.15
Number of options
exercisable as at
October 31, 2019
572,758
419,810
378,974
100,050
1,471,592
Weighted
average
price
$
6.87
10.13
12.35
19.24
10.05
COMPENSATION EXPENSE RELATED TO STOCK OPTION PLAN
During the year ended October 31, 2019, the Corporation granted no stock options [157,735 in 2018] to its key executives and
employees. The average fair value of each option granted is estimated on the date of grant using the Black-Scholes option
pricing model. The assumptions used and the weighted average fair value of the options on the date of grant are as follows:
Risk-free interest rate
Expected life
Expected volatility
Dividend yield
Weighted average fair value at date of grant
2019
—
—
—
—
—
2018
1.80%
4 years
39.0%
0.0%
$3,59
During the year ended October 31, 2019, the Corporation recorded a compensation expense of $427 [$496 in 2018] for its
stock option plan.
Performance share unit plan
Performance share units [“PSUs”] are awarded in connection with the performance share unit plan for senior executives.
Under this plan, each eligible senior executive receives a portion of his or her compensation in the form of PSUs. PSUs consist
of a number equal to a percentage of the participant’s basic salary, divided by the fair market value of Class B Shares as at
the award date. Once vested, PSUs give the participant the right to receive an equal number of shares or a cash payment, at
the Corporation’s discretion. Starting in 2017, PSUs awarded vest 100% in mid-January three years following the award,
provided the performance criteria determined on the award are met. PSUs awarded prior to 2017 vest in three tranches of
16.67% in mid-January of each year for three years following the award, provided the performance criteria determined on
each award are met. The remaining 50% of PSUs awarded vest in mid-January three years following their award, provided
the plan member is still an employee of the Corporation. Under the plan, in the event of a change of control, all outstanding
PSUs vest.
During the year ended October 31, 2019, the Corporation granted no PSUs [236,492 in 2018] to its key executives and
employees. As at October 31, 2019, the number of PSUs awarded amounted to 451,755. During the year ended
October 31, 2019, the Corporation recognized a compensation expense of $2,945 [$1,714 in 2018] for its performance share
unit plan, of which $1,185 was recorded as an equity-settled transaction and $1,760 was recorded as a
cash-settled transaction.
Share purchase plan
A share purchase plan is available to eligible employees of the Corporation and its subsidiaries. Under the plan, as at
October 31, 2019, the Corporation was authorized to issue up to 355,790 shares. The plan allows each eligible employee to
purchase shares up to an overall limit of 10% of his or her annual salary in effect at the time of plan enrolment. The purchase
price of the shares under the plan is equal to the weighted average price of the shares during the five trading days prior to
the issue of the shares, less 10%.
During the year, the Corporation issued 169,862 shares [188,785 Class B Shares in 2018] for a total of $940 [$1,555 in 2018]
under the share purchase plan.
2019 Annual Report Transat A.T. Inc. | 87
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Stock ownership incentive and capital accumulation plan
Subject to participation in the share purchase plan offered to all eligible employees of the Corporation, the Corporation
awards annually to each eligible officer a number of shares, the aggregate purchase price of which is equal to an amount of
30% or 60% of the maximum percentage of salary contributed, which may not exceed 5%. Shares so awarded by the
Corporation will vest to the eligible employee, subject to the retention during the first six months of the vesting period of all
the shares purchased under the Corporation’s share purchase plan.
The shares awarded under this plan are bought in the market by the Corporation and deposited in the participants’ accounts
as and when they purchase shares under the share purchase plan.
During the year ended October 31, 2019, the Corporation recognized a compensation expense of $84 [$188 in 2018] for its
stock ownership incentive and capital accumulation plan.
Permanent stock ownership incentive plan
Subject to participation in the share purchase plan offered to all eligible employees of the Corporation, the Corporation
awards annually to each eligible senior executive a number of shares, the aggregate purchase price of which is equal to the
maximum percentage of salary contributed, which may not exceed 10%. Shares so awarded by the Corporation will vest
gradually to the eligible senior executive, subject to the senior executive’s retaining, during the vesting period, all the shares
purchased under the Corporation’s share purchase plan. The shares awarded under this plan are bought in the market by
the Corporation and deposited in the participants’ account as and when they purchase shares under the share purchase plan.
During the year ended October 31, 2019, the Corporation recognized a compensation expense of $243 [$238 in 2018] for its
permanent stock ownership incentive plan.
Deferred share unit plan
Deferred share units [“DSUs”] are awarded in connection with the independent director deferred share unit plan. Under this
plan, each independent director receives a portion of his or her compensation in the form of DSUs. The value of a DSU is
determined based on the average closing share price for the five trading days prior to the award of the DSUs. The DSUs are
repurchased by the Corporation when a director ceases to be a plan participant. For the purpose of repurchasing DSUs, the
value of a DSU is determined based on the average closing share price for the five trading days prior to the repurchase of
the DSUs.
As at October 31, 2019, the number of DSUs awarded amounted to 306,775 [274,345 as at October 31, 2018]. During the year
ended October 31, 2019, the Corporation recorded a compensation expense of $2,946 [compensation expense reversal of
$496 in 2018] for its deferred share unit plan.
Restricted share unit plan
Restricted share units [“RSUs”] are awarded annually to eligible employees under the new restricted share unit plan. Under
this plan, each eligible employee receives a portion of his or her compensation in the form of RSUs. The value of an RSU is
determined based on the weighted average closing share price for the five trading days prior to the award of the RSUs. The
rights related to RSUs are acquired over a period of three years. When acquired, the RSUs are immediately repurchased by
the Corporation, subject to certain conditions and certain provisions relating to the Corporation’s financial performance.
For the purpose of repurchasing RSUs, the value of an RSU is determined based on the weighted average closing share price
for the five trading days prior to the repurchase of the RSUs. Under the plan, in the event of a change of control, all
outstanding RSUs vest.
As at October 31, 2019, the number of RSUs awarded amounted to 393,601 [925,929 as at October 31, 2018]. During the year
ended October 31, 2019, the Corporation recorded a $5,615 compensation expense [nil compensation expense in 2018] for
its restricted share unit plan.
2019 Annual Report Transat A.T. Inc. | 88
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Earnings per share
Basic and diluted earnings per share were calculated as follows:
[In thousands, except per share amounts]
NUMERATOR
Net income (loss) attributable to shareholders
DENOMINATOR
Adjusted weighted average number of outstanding shares
Effect of dilutive securities
Stock options
Adjusted weighted average number of outstanding shares used in computing
diluted earnings per share
Earnings (loss) per share
Basic
Diluted
2019
$
2018
Restated
[note 4]
$
(33,191)
6,451
37,673
37,394
—
168
37,673
37,562
(0.88)
(0.88)
0.17
0.17
Given the net loss recorded for the year ended October 31, 2019, all 1,748,570 outstanding stock options were excluded from
the calculation due to their anti-dilutive effect. For the purposes of calculating diluted earnings (loss) per share for the year
ended October 31, 2018, 911,734 outstanding stock options were excluded from the calculation, as their exercise price
exceeded the Corporation’s average market share price.
2019 Annual Report Transat A.T. Inc. | 89
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 20 Additional disclosure on revenue and expenses
Breakdown of revenue from contracts with customers
Revenue from contracts with customers is broken down as follows:
Customers
Transatlantic
Americas
Other
Total revenues
Contract balances
Contract balances with customers are detailed as follows:
Trade accounts receivable [note 8]
Contract costs, included in Prepaid expenses
Customer deposits and deferred revenues
Salaries and employee benefits
Salaries and other employee benefits
Long-term employee benefits [note 24]
Share-based payment expense
Depreciation and amortization
Property, plant and equipment
Intangible assets subject to amortization
Other assets
Deferred lease inducements
2019
$
2018
Restated
[note 4]
$
1,173,884
1,705,753
57,493
2,937,130
1,112,818
1,679,514
56,623
2,848,955
2019
$
25,669
52,761
561,404
2018
$
30,831
38,414
517,352
2019
$
407,836
2,927
1,612
412,375
2018
$
381,889
2,799
2,210
386,898
2019
$
49,243
15,062
12
(239)
64,078
2018
$
44,759
14,489
118
(241)
59,125
2019 Annual Report Transat A.T. Inc. | 90
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 21 Special items
Special items generally include restructuring charges and other significant unusual items. For the year ended
October 31, 2019, professional fees of $10,302 and compensation expenses of $13,573 were recorded in connection with the
transaction with Air Canada. The compensation expenses are mainly related to the stock-based compensation plans which
include a change of control clause and to adjustments related to stock-based compensation plan provisions subsequent to
the significant rise in the share price. Compensation expenses recorded as special items result from Air Canada’s offer,
which makes it likely that the change of control criteria included in some of the Corporation’s stock-based compensation
plans will be met, and also reduces the vesting period.
During the year ended October 31, 2018, the Corporation recorded a restructuring charge of $2,262, comprising mainly
termination benefits. On June 5, 2019, the Corporation settled, without admission of liability, for an amount of US$5,000
[$6,700], a litigation whereby plaintiffs alleged misappropriation of confidential information and solicitation of employees;
this amount was recorded under Special items in the consolidated statements of income for the year ended October 31, 2018.
Note 22 Income taxes
The major components of the income tax expense for the years ended October 31 are:
Consolidated statements of income
Current
Current income taxes
Adjustment to taxes payable for prior years
Deferred
Relating to temporary differences
Adjustment to deferred taxes for prior years
Income tax recovery
2019
$
1,243
(215)
1,028
(9,136)
(114)
(9,250)
(8,222)
2018
Restated
[note 4]
$
(7,505)
1,011
(6,494)
2,077
(532)
1,545
(4,949)
The reconciliation of income taxes, computed at the Canadian statutory rates, to income tax expense was as follows for the
years ended October 31:
Income taxes at the statutory rate
Increase (decrease) resulting from:
Effect of differences in Canadian and foreign tax rates
Non-taxable items
Recognition of previously unrecorded tax benefits
Derecognition of a future income tax asset
Adjustments for prior years
Effect of tax rate changes
Other
2019
%
26.6
$
(10,312)
7.0
(7.9)
1.1
(6.1)
0.8
(0.2)
(0.1)
21.2
(2,718)
3,051
(421)
2,353
(328)
84
69
(8,222)
2018
Restated
[note 4]
%
26.7
(63.9)
(90.5)
(3.1)
17.3
9.5
(0.2)
6.0
(98.2)
$
1,346
(3,220)
(4,563)
(156)
874
479
(12)
303
(4,949)
The applicable statutory income tax rate was 26.6% for the year ended October 31, 2019 [26.7% for the year ended
October 31, 2018]. The 0.1% rate decrease is due to the reduction in the applicable Québec tax rate which was lowered from
11.7% to 11.6%. The Corporation’s applicable statutory income tax rate is the applicable combined Canadian (federal and
Québec) tax rate.
2019 Annual Report Transat A.T. Inc. | 91
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Deferred taxes reflect the net tax impact of temporary differences between the value of assets and liabilities for accounting
and tax purposes. The main components and changes in temporary differences in deferred tax assets and liabilities for fiscal
2019 and 2018 were as follows:
Deferred tax losses
Excess of tax value over net carrying value of:
Property, plant and equipment and software
Intangible assets, excluding software
Derivative financial instruments
Other financial assets and other assets
Provisions
Employee benefits
Other financial liabilities and other liabilities
Deferred tax
2019
Recognized in
other
comprehensive
income
$
—
Recognized in
net income
$
2,828
Recognized in
equity
$
—
Exchange
differences
$
—
Balance, end
of year
$
3,071
(717)
(129)
2,226
142
2,192
523
2,185
9,250
—
—
4,019
—
—
1,225
—
5,244
(612)
—
—
—
382
—
—
(230)
(10)
(21)
—
—
—
—
—
(31)
(13,442)
705
1,892
1,283
20,510
12,451
(535)
25,935
Balance,
beginning of
year
243
(12,103)
855
(4,353)
1,141
17,936
10,703
(2,720)
11,702
Deferred tax losses
Excess of tax value over net carrying value of:
Property, plant and equipment and software
Intangible assets, excluding software
Derivative financial instruments
Other financial assets and other assets
Provisions
Employee benefits
Other financial liabilities and other liabilities
Deferred tax
The net deferred tax assets are detailed below:
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
Balance,
beginning of
year
Recognized in
net income
2018
Recognized in
other
comprehensive
income
Restated
Restated
Restated
[note 4]
$
1,467
(12,646)
837
(2,750)
1,289
13,151
10,802
973
13,123
[note 4]
$
(1,224)
525
9
(2,295)
(148)
4,785
496
(3,693)
(1,545)
[note 4]
$
—
—
—
692
—
—
(595)
—
97
Exchange
differences
Balance, end
of year
Restated
[note 4]
$
243
(12,103)
855
(4,353)
1,141
17,936
10,703
(2,720)
11,702
$
—
18
9
—
—
—
—
—
27
2019
$
27,209
(1,274)
25,935
2018
Restated
[note 4]
$
14,954
(3,252)
11,702
2019 Annual Report Transat A.T. Inc. | 92
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Non-capital losses recorded in various jurisdictions expire as follows:
Year of expiry
2020 - 2024
2025 - 2029
2030 - 2034
2035 - 2040
With no expiry
Unrecognized
$
5,757
6,789
49
1,871
708
Recognized
$
—
—
—
8,722
—
15,174
8,722
As at October 31, 2019, non-capital losses carried forward and other unrecognized tax deductions available to reduce future
taxable income of certain subsidiaries in Mexico total MXP180,449 [$12,366] [MXP91,014 [$5,895] as at October 31, 2018].
These losses and deductions expire in 2020 and thereafter. Unrecognized capital losses as at October 31, 2019 totalled $4,574
($4,317 as at October 31, 2018).
The Corporation recognized no deferred tax liability on retained earnings of its foreign subsidiaries and its joint venture as
these earnings are considered to be indefinitely reinvested. However, if these earnings are distributed in the form of
dividends or otherwise, the Corporation may be subject to corporate income tax or withholding tax in Canada and/or abroad.
As of October 31, 2019, there are no taxable temporary differences for which a deferred income tax liability was recorded.
2019 Annual Report Transat A.T. Inc. | 93
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 23 Related party transactions and balances
The consolidated financial statements include those of the Corporation and those of its subsidiaries. The main subsidiaries
and joint venture of the Corporation are listed below:
Air Transat A.T. inc.
Transat Tours Canada inc.
Transat Distribution Canada inc.
11061987 Florida Inc.
Transat Holidays USA Inc.
The Airline Seat Company Ltd.
Air Consultants France S.A.S.
Caribbean Transportation Inc.
CTI Logistics Inc.
Sun Excursions Caribbean Inc.
Propiedades Profesionales Dominicanas Carhel S.R.L.
Servicios y Transportes Punta Cana S.R.L.
TTDR Travel Company S.A.S.
Turissimo Carribe Excusiones Dominican Republic C por A
Turissimo Jamaica Ltd.
Laminama S.A. de C.V.
Promociones Residencial Morelos S.A. de C.V.
Promotora Turística Regional S.A. de C.V.
Trafictours de Mexico S.A. de C.V.
Desarrollo Transimar S.A. de C.V.
Compensation of key senior executives
Country of
incorporation
Canada
Canada
Canada
United States
United States
United Kingdom
France
Barbados
Barbados
Barbados
Dominican Republic
Dominican Republic
Dominican Republic
Dominican Republic
Jamaica
Mexico
Mexico
Mexico
Mexico
Mexico
Interest (%)
2018
100.0
100.0
100.0
100.0
100.0
100.0
100.0
70.0
70.0
70.0
70.0
70.0
70.0
70.0
70.0
100.0
—
100.0
70.0
50.0
2019
100.0
100.0
100.0
100.0
100.0
100.0
100.0
70.0
70.0
70.0
70.0
70.0
70.0
70.0
70.0
100.0
100.0
100.0
70.0
50.0
The annual compensation and related compensation costs of directors and key senior executives, namely the President and
Chief Executive Officer and the Senior Vice Presidents of the Corporation were as follows:
Salaries and other employee benefits
Long-term employee benefits
Share-based payment expense
2019
$
6,958
1,280
2,412
2018
$
5,566
1,331
1,753
2019 Annual Report Transat A.T. Inc. | 94
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 24 Employee future benefits
The Corporation offers defined benefit pension arrangements to certain senior executives and defined contribution plans to
certain employees.
Defined benefit arrangements and post-employment benefits
The defined benefit pension plans offered to certain senior executives provide for payment of benefits based on the number
of years of eligible service provided and the average eligible earnings for the five years in which the participant’s eligible
earnings were the highest. These arrangements are not funded; however, to secure its obligations related to defined benefit
pension arrangements, the Corporation has issued a $51,224 letter of credit to the trustee [see note 7]. The Corporation uses
an actuarial estimate to measure its obligations as at October 31 each year.
The following table provides a reconciliation of changes in the defined benefit obligation as at October 31, 2019 and 2018:
Present value of obligations, beginning of year
Current service cost
Financial costs
Benefits paid
Experience losses (gains)
Actuarial loss (gain) on obligation
Present value of obligations, end of year
2019
$
40,388
1,280
1,647
(960)
(648)
5,279
46,986
2018
$
40,764
1,342
1,457
(956)
238
(2,457)
40,388
The following table provides the components of retirement benefit expense for the years ended October 31:
Current service cost
Interest cost
Total cost of retirement benefits
2019
$
1,280
1,647
2,927
2018
$
1,342
1,457
2,799
The following table indicates projected payments under defined benefit pension plan arrangements as at October 31, 2019:
Under one year
One to five years
Between five and 10 years
Between 10 and 15 years
Between 15 and 20 years
$
959
11,175
14,970
13,257
11,126
51,487
The weighted average duration of the defined benefit obligation related to pension arrangements was 12.6 years as at
October 31, 2019.
2019 Annual Report Transat A.T. Inc. | 95
Transat A.T. Inc.
Notes to Consolidated Financial Statements
The significant actuarial assumptions used to determine the Corporation’s retirement benefit obligation and expense were
as follows:
Retirement benefit obligation
Discount rate
Rate of increase in eligible earnings
Retirement benefit expense
Discount rate
Rate of increase in eligible earnings
2019
%
2018
%
3.00
2.75
4.00
2.75
4.00
2.75
3.50
2.75
A 0.25 percentage point increase in the actuarial assumptions below would have the following impacts, all other actuarial
assumptions remaining the same:
Increase (decrease)
Discount rate
Rate of increase in eligible earnings
Retirement benefit
expense for
the year ended
October 31, 2019
$
(1)
13
Retirement benefit
obligations as at
October 31, 2019
$
(1,406)
80
The funded status of the benefits and the amounts recorded in the statement of financial position under other liabilities
were as follows:
Plan assets at fair value
Accrued benefit obligation
Retirement benefit deficit
2019
$
—
46,986
46,986
2018
$
—
40,388
40,388
Changes in the cumulative amount of net actuarial losses recognized in other comprehensive income (loss) and presented as
a separate component of retained earnings were as follows:
Gains (losses)
October 31, 2017
Actuarial gains
Income taxes
October 31, 2018
Actuarial losses
Income taxes
October 31, 2019
$
(8,808)
2,219
(595)
(7,184)
(4,631)
1,225
(10,590)
Defined contribution pension plans
The Corporation offers defined contribution pension plans to certain employees with contributions based on a percentage
of salary.
Contributions to defined contribution pension plans, which correspond to the cost recognized, amounted to $14,310 for the
year ended October 31, 2019 [$13,559 for the year ended October 31, 2018].
2019 Annual Report Transat A.T. Inc. | 96
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 25 Commitments and contingencies
Operating leases
The Corporation leases aircraft, buildings, automotive equipment, communications systems and office premises relating to
travel sales. The minimum lease payments under non-cancellable operating leases are as follows:
Under one year
One to five years
Over five years
2019
$
217,210
860,377
1,106,884
2,184,471
The lease expense totalled $163,865 for the year ended October 31, 2019 [$143,805 for the year ended October 31, 2018].
Other commitments
The Corporation also has purchase obligations under various contracts entered into in the normal course of business. The
purchase obligations are as follows:
Under one year
One to five years
Over five years
Litigation
2019
$
41,862
10,218
4,750
56,830
In the normal course of business, the Corporation is exposed to various claims and legal proceedings. These disputes often
involve numerous uncertainties and the outcome of the individual cases is unpredictable. According to management, these
claims and proceedings are adequately provided for or covered by insurance policies and their settlement should not have a
significant negative impact on the Corporation’s financial position, subject to the paragraph hereunder. The Corporation has
directors’ and officers’ liability insurance as well as professional liability insurance and the amount of coverage under said
insurance policies is usually sufficient to pay the amounts the Corporation may be required to disburse in connection with
these lawsuits. In all these lawsuits, the Corporation has and will continue to vigorously defend its position.
Other
From time to time, the Corporation is subject to audits by tax authorities that give rise to questions regarding the tax
treatment of certain transactions. Certain of these matters could entail significant costs that will remain uncertain until one
or more events occur or fail to occur. Although the outcome of such matters is not predictable with assurance, the tax claims
and risks for which there is a probable unfavourable outcome are recognized by the Corporation using the best possible
estimates of the amount of the loss. The tax deductibility of losses reported by the Corporation in previous fiscal years with
regard to investments in ABCP was challenged by tax authorities. No provisions are made in connection with this issue, which
could result in expenses of approximately $16,200, as the Corporation intends to defend itself vigorously with respect thereto
and firmly believes it has sufficient facts and arguments to obtain a favourable final outcome. However, the Corporation
already paid $15,100 to the tax authorities in respect of this matter during the fiscal year ended October 31, 2015 and objected
to the notices of assessment received. This amount was recognized as income taxes receivable as at October 31, 2019
and 2018.
2019 Annual Report Transat A.T. Inc. | 97
Transat A.T. Inc.
Notes to Consolidated Financial Statements
Note 26 Guarantees
In the normal course of business, the Corporation has entered into agreements containing clauses meeting the definition of
a guarantee. These agreements provide compensation and guarantees to counterparties in transactions such as operating
leases, irrevocable letters of credit and collateral security contracts.
These agreements may require the Corporation to compensate the counterparties for costs and losses incurred as a result
of various events, including breaches of representations and warranties, loss of or damages to property, claims that may
arise while providing services and environmental liabilities.
Notes 7, 9, 17, 24 and 25 to the consolidated financial statements provide information about some of these agreements. The
following constitutes additional disclosure.
Operating leases
The Corporation’s subsidiaries have general indemnity clauses in many of their airport and other real estate leases whereby
they, as lessee, indemnify the lessor against liabilities related to the use of the leased property. These leases expire at various
dates through 2034. The nature of the agreements varies based on the contracts and therefore prevents the Corporation
from estimating the total potential amount its subsidiaries would have to pay to lessors. Historically, the Corporation’s
subsidiaries have not made any significant payments under such agreements and have liability insurance coverage in
such circumstances.
Collateral security contracts
The Corporation has entered into collateral security contracts with certain suppliers. Under these contracts, the Corporation
guarantees the payment of certain services rendered that it undertook to pay. These contracts typically cover a one-year
period and are renewable.
The Corporation has entered into collateral security contracts whereby it guarantees a prescribed amount to its customers,
at the request of regulatory agencies, for the performance of the obligations included in mandates by its customers during
the term of the licences granted to the Corporation for its travel agent and wholesaler operations in the Province of Québec.
These agreements typically cover a one-year period and are renewable annually. As at October 31, 2019, the total amount of
these guarantees unsecured by deposits was $472. Historically, the Corporation has not made any significant payments under
such agreements. As at October 31, 2019, no amounts had been accrued with respect to the above-mentioned agreements.
Irrevocable credit facility unsecured by deposits
The Corporation has a guarantee facility that is renewable in 2020. Under this agreement, the Corporation may issue
collateral security contracts with a maximum three-year term and for a total amount of $50,000. As at October 31, 2019,
$24,350 had been drawn down under the facility [$31,221 in 2018].
Note 27 Segmented disclosure
The Corporation has determined that it conducts its activities in a single industry segment, namely holiday travel. With
respect to geographic areas, the Corporation’s operations are mainly in the Americas. Revenues and non-current assets
outside the Americas are not material. Therefore, the consolidated statements of income and consolidated statements of
financial position include all the required information.
2019 Annual Report Transat A.T. Inc. | 98
Information
transat.com
For additional
information, write to
the Vice-President, Finance
and Administration,
and Chief Financial Officer.
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Auditors
Ernst & Young LLP
Montréal (Québec)
Annual and Special Meeting
of Shareholders
Thursday, March 12, 2020
10:00 a.m.
Hotel 10
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Montreal, Quebec
H2X 4C9
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tour operator to be Travelife Certified for all its activities.
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