Canadian Tour Op Transat Looks to the Future

Transat A.T. Inc., a Canadian tour operator with that country’s largest travel agency network, expects to return to profitability this year after losing money in 2011 and 2012.

The company  faces a number of challenges including revitalizing its approach to the highly competitive sun market from Canada.

Jean-Marc Eustache, Transat president and CEO, shared his thoughts on the Canadian market, changes in how clients purchase travel and the future of his company with Travel Market Report.

What challenges do Canadian suppliers face?
Eustache: Deep in my soul, I am still a travel agent. That’s part of our DNA as Transat grew from a small travel agency into a tour operator that now has the largest travel agency network in Canada.

I think the challenge for all service providers and agents is to adapt to a concept that has not yet sunk in: The traveler is now king, there are myriad ways for him or her to plan and buy trips. The shopping process will never be the same again.

Now, it’s true that service providers are less dependent on agents than in the past. But right now, for certain categories of products, consumers are telling us they want to go through an agent. At the end of the day, we all need to be creative and find new ways to make the web dovetail with brick and mortar agencies.

Is Transat facing any challenges?
Eustache: Transat lost money in 2011 and 2012. We will be back in the black this year. Two of our three largest market segments are doing well.

We are very good on the transatlantic, that is, tourism travel between Canada and a dozen European countries, a market in which we operate on a year-round basis but with the bulk in the summer.

We are also very good as an outgoing tour operator in France, where we sell lots of destinations around the world. The French market is depressed right now and it has also suffered from the crises in Tunisia and Egypt, but we are breaking even and we are the envy of our peers.

What about your other markets?
Eustache: The one key market where we need to make substantial adjustments in our strategy is sun destinations from Canada. Again, this is a 12-month market but of course the bulk of the volume is in the winter.

It’s a highly competitive market and right now it is not profitable for us. We need to rejuvenate our approach. We are working very hard on that one. We have reviewed our hotel strategy, we have refined our packages, we have strengthened our marketing, and we are in the process of lowering our costs – all of this in the context of an improved customer experience.
 
What do you see as the company’s greatest strengths?
Eustache: I would emphasize resilience. We have seen it all, from 9/11 to the avian flu of 2003, from the commercial paper crisis of 2008 to an assault by hedge funds a couple of years before. We have never given up.

From a more concrete point of view, right now we are benefiting from a natural hedge because we are in several market segments and we are integrated. We are struggling on sun destinations but on the transatlantic we are doing extremely well.

And the fact that we control most of our lift and a large chunk of our retail distribution in Canada helps in managing costs and with our overall financial performance.
 
How about weaknesses?
Eustache: We need to be better as a customer-driven company. I would offer that we suffer a bit from our long heritage of being a B2B player. We have made good progress on that front, but in this day and age, you can easily see that no company can afford to not be very close to the actual traveller.
 
What steps is Transat taking to maintain its profitability?
Eustache: We are in the process of implementing a comprehensive cost-reduction and margin-improvement program that should yield a cumulative $75-million improvement in 2015. Right now we are in line with our targets for the first two years of the program, 2012 and 2013.

We have decided to internalize some flying we were outsourcing to a Canadian partner and we are implementing something very innovative, what we call our accordion fleet. In a nutshell, we will have variable numbers of large and small aircraft depending on the season, so that our fleet always dovetails perfectly with our portfolio of destinations, which varies with the seasons. So, we are working on a number of efficiency improvements.

At the other end of the spectrum, we need to work on procurement and product in order to improve selling prices. The third leg of the stool is distribution.  We want to unleash the full power of our travel agency network and web tools.
 
What impact do you expect Air Canada rouge to have on your business?
Eustache: I am always a bit amazed by the fact that people seem to think that competition from Air Canada will be something new and hugely disruptive. Air Canada has simply found a way to reduce the wages of part of its personnel with the help of the Canadian government.

On several routes, rouge aircraft will simply replace Air Canada aircraft. On the transatlantic we are the lowest-cost producer and this summer, even on routes where rouge operates, we are doing better than last year. This is not to say we underestimate the competition. Far from it. But we are surrounded by competition, and that has been always the case. I am not saying this is business as usual; we take this seriously, but let’s not exaggerate the threat.
 
Do you plan to expand and/or improve your distribution network?
Eustache: Our brick and mortar network in Canada, with 600 outlets, makes us the leader in the country by far, and expanding it further is not a priority. Right now it’s much more important to work hand-in-hand with agency operators to find innovative ways to mesh web-based tools, B2B and B2C, and actual travel advisors so that it benefits both the agents and Transat.