Good morning, ladies and gentlemen. Welcome to the Transat Conference Call. Please note that this call is being recorded. I would now like to turn the meeting over to Andrée-Anne Gagné, Senior Director, Communications, Public Affairs, and Corporate Responsibility. Please go ahead, Ms. Gagné.
[Foreign Language] . Hello everyone, and thank you for joining us for our second quarter earnings call ended April 30, 2025. Annick Guérard, President and CEO, and Jean-François Pruneau, our Chief Financial Officer, will provide an overview of the quarter and comment on the current operational situation and commercial plans. Jean-François will also discuss our financial results in detail. We will then take questions from financial analysts. Questions from journalists will be taken offline after the call. The conference call will be conducted in English, but questions may be asked in French or English. As usual, our supplementary disclosure has been updated and is available on our website and the Investors' section. Jean-François may refer to it when he presents the results.
Our comments and discussion today may include forward-looking information regarding Transat's outlook, objectives, and strategies that are based on assumptions and subject to risk and uncertainty. Forward-looking statements represent Transat's expectations as of June 12, 2025, and are therefore subject to change after that date. Our actual results may differ materially from any stated expectation. Please refer to our forward-looking statement and Transat's second quarter news release available on transat.com and on SEDAR+. With that, I would like to turn the call over to Annick for opening remarks.
Good morning. Thank you for joining our second quarter conference call for fiscal 2025. The quarter ended with a better performance compared to the same period last year, with revenue growing 5.9% to over CAD 1 billion and adjusted EBITDA reaching CAD 98.4 million. These results were mainly driven by favorable yields, lower fuel costs, a tight control of operating expenses, and a non-cash compensation of CAD 20 million from Pratt & Whitney recorded in revenue. Before continuing on our performance for the quarter, I'd like to highlight an important milestone. As announced last week, we've reached an agreement to restructure our debt. This marks a significant step forward for Transat, as it meaningfully deleverages our balance sheet and paves the way for the execution of our business plan with greater agility. It also reinforces the foundation for the continued rollout of our elevation program, our roadmap to long-term sustainable growth.
Jean-François will provide more detail on the structure in terms of the agreement shortly. If we look at our operating matrix for the second quarter, customer traffic expressed as revenue passenger miles increased 1.6% over last year, reflecting continued demand for leisure travel. Higher traffic and a disciplined capacity increase resulted in a yield improvement of 2% year- over- year, building on the positive trend observed in Q1, where yield was up 1.7%. Our load factor was 84.6%, representing a slight decline from last year. Capacity expressed in available seat miles was up 2.6% across our global network, reflecting disciplined growth. The increase reflects aircraft utilization over longer distances during the winter, mainly by annualizing certain European routes. Meanwhile, capacity for some destinations held relatively steady. With regards to our Elevation Program, as of today, the initiatives already implemented are expected to generate annualized adjusted EBITDA of CAD 67 million.
This marks solid progress over the CAD 37 million reported three months ago. We remain well on track for the program to deliver CAD 100 million in adjusted EBITDA by mid-2026. As indicated before, the initial phase mainly consisted in optimizing our cost structure. Notably, initiatives related to AI implementation, especially in our call center, outperformed expectations, delivering efficiencies well above initial projections. Encouragingly, we continue to see strong momentum on the cost side, with further opportunities to deepen our impact through targeted initiatives. In addition, we are progressing on initiatives aimed at enhancing revenue generation, including new revenue streams and the deployment of enhanced revenue management tools. So far, the initial part of the program has had limited impact on our financial results, but we expect benefits to begin materializing in the second half of this fiscal year and have a favorable effect on our bottom line.
Turning to our fleet, as previously indicated, it will remain stable at 43 aircraft for the summer season. We are continuing to actively manage the negative impact caused by the Pratt & Whitney engine situation. We expect the number of grounded aircraft to remain at six or seven for the remainder of the year. As for the network, we are both strengthening and diversifying our offering through two strategic initiatives for next winter. First, we are taking advantage of the shift in demand from the U.S. to the Caribbean and Mexican markets by offering new exclusive routes. This allows us to add high-potential markets to our network, like Guadalajara, Mexico, which we will be servicing from Montreal, and Martinique, with service from Quebec City. Other launches include a new exclusive route between Toronto and Medellín, Colombia, via Cartagena, and Toronto to Georgetown, the capital of Guyana.
In parallel, we will offer new departure points from Canada to popular Sun destinations by adding non-stop flights between Windsor, Ontario, to Punta Cana, Charlottetown, and Fredericton to Cancun. The second part of our network development plan involves expanding our service to selected European markets year-round. This initiative will address increased demand for shoulder seasons to popular destinations. More specifically, for the winter of 2025-2026, we will extend routes to Bordeaux, France, Valencia, and Madrid, Spain. Consolidating our year-round presence in certain key leisure travel markets in France and Spain confirms their strategic importance in our Transat network. All things considered, our network expansion initiatives will increase revenue and improve cost efficiency by leveraging the versatility of our A321 fleet. On the operational front, we continue to make important progress. On-time performance in the second quarter improved year- over- year on all fronts.
It was our fourth consecutive quarter of significant progress, mainly driven by the insourcing of ground services at Montreal-Trudeau Airport. Customer service at call centers also further improved, reflecting the progressive deployment of AI tools. The overall productivity and performance of our call center continue to surpass expectations and consistently deliver strong results. Looking ahead to the summer season, yields are about 1.7% ahead of last year, while load factors are similar. Sun destinations are enjoying strong bookings. Europe is holding. The third quarter is off to a strong start. However, we have observed some softness for the fourth quarter to date. While economic uncertainty is weighing on consumer confidence, travelers still appear willing to travel. However, they tend to wait a bit longer before booking and are looking for seat sales, which have remained successful.
We are paying close attention to evolving booking trends and consumer behavior and taking a cautious stance when assessing the outlook for the next 18 months. In this context, our focus remains on driving operational improvement through the disciplined execution of the Elevation Program. Furthermore, the comprehensive refinancing plan we announced last week provides us with greater financial flexibility. This allows us to concentrate more effectively on long-term strategic planning while maintaining strong momentum in our operational performance. Finally, I would like to thank our employees for their excellence and dedication. This concludes my remarks for today. Jean-François will now present our financial results.
Thank you, Annick. Good morning, everyone. Before I address our quarterly results, I would like to start by highlighting the refinancing agreement we announced last week and by providing some additional context. This agreement is the culmination of 18 months of constructive discussions with our main lender, and we are very pleased with the outcome. It represents a major milestone in our financial strategy, and it significantly reduces Transat's debt, a debt that was incurred solely as a result of the COVID-19 pandemic. Following the transaction, our outstanding debt with CIBC will be reduced by half, from CAD 773 million to CAD 334 million. This significant reduction will be achieved through several key steps. At closing, we will repay the CAD 41 million LEEFF Secured Credit facility in full. The remaining LEEFF Credit facilities will be consolidated into a single CAD 175 million facility. We will issue to CIBC a CAD 159 million unsecured debenture.
Additionally, we will issue CAD 16 million in preferred shares. Finally, the existing warrants will be maintained. This transaction not only reduces our leverage but also extends the maturity of the remaining debt with CIFS to 2035, providing us with the time and flexibility needed to execute our Elevation Program. This refinancing marks a turning point for Transat. It strengthens our balance sheet, significantly reduces our annual interest expenses, and enhances our financial resilience. Most importantly, it positions us to pursue our long-term strategic objectives with renewed confidence. Another positive development we announced during the quarter is the agreement we reached with Pratt & Whitney. This new agreement provides compensation to address the direct cost associated with grounded aircraft and covers the calendar years 2025 and 2026.
The agreement is similar in structure to an earlier agreement concluded last year, whereas the compensation takes the form of credits to be applied towards products and services, including the purchase of two additional spare engines. The credits are for a maximum amount of $55 million U.S., or approximately CAD 77 million, of which CAD 20 million was recorded as non-cash revenue during the second quarter. We expect to receive the engines during the summer, and it is our intention to monetize them through a sale and lease-back transaction. Now, let's take a closer look at our results for the second quarter of fiscal 2025. Revenues amounted to CAD 1.03 billion, up 5.9% from the second quarter of 2024. This growth reflects a 2% year-over-year improvement in yield expressed in airline unit revenues and a 1.6% increase in customer traffic expressed in revenue passenger miles over the second quarter of 2024.
It also reflects the CAD 20 million non-cash revenue mentioned a moment ago. Adjusted EBITDA reached CAD 98 million, up sharply from CAD 30 million in the second quarter of last year. This significant improvement reflects revenue growth, an 18% year-over-year decline in fuel prices, tight control of operating costs leading to a 3% year-over-year decrease in adjusted CASM excluding fuel, and reduced costs from short-term aircraft leases. The net loss was CAD 23 million, or CAD 0.58 per share, in the second quarter of 2025, compared to CAD 54 million, or CAD 1.40 per share, in the second quarter of 2024. On an adjusted basis, we recorded net income of CAD 5 million, or CAD 0.12 per share, versus an adjusted net loss of CAD 47 million, or CAD 1.21 per share last year.
Moving to our cash flow and financial position, cash flow from operating activities totaled CAD 208 million in Q2 2025, compared to CAD 183 million in Q2 of last year, mainly reflecting improved net income before non-cash elements. CapEx decreased from CAD 30 million in last year's second quarter to CAD 15 million this year, driven by a more favorable maintenance calendar versus last year and the deferral of certain discretionary expenses. After accounting for investing activities and repayment of lease liabilities, free cash flow amounted to CAD 140 million in the second quarter versus CAD 110 million a year ago. After six months, our free cash flow reached CAD 271 million in 2025 versus CAD 149 million in 2024. Turning to our balance sheet, cash and cash equivalents stood at CAD 533 million as of April 30, 2025, up from CAD 389 million at the end of the previous quarter.
Cash and cash equivalents and trusts are otherwise reserved, mainly resulting from travel package bookings, was CAD 296 million at the end of Q2 compared to CAD 635 million at the end of the previous quarter, reflecting the seasonal nature of our operations. As of April 30, 2025, long-term debt and deferred government grant totaled CAD 812 million. Pro forma the debt restructuring transaction, this amount is expected to decrease to CAD 384 million. Net of cash, long-term debt and deferred government grant stood at CAD 280 million as of April 30, 2025, while on a pro forma basis, we would present a net cash position of CAD 104 million. This concludes my prepared comments.
Just before moving on to the questions, I would like to take a moment to express, on behalf of our entire organization, our deepest condolences to the families and loved ones of those affected by the tragic Air India accident. Our thoughts, as well as those of all the people working in the industry, are with them during these difficult times. We will now take questions.
Thank you. Ladies and gentlemen, if you do have any questions, please press * followed by 1 on your touch-tone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press * followed by 2. If you are using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press * 1 now if you do have any questions. First, we will hear from Konark Gupta at Scotiabank. Please go ahead.
Thanks, and good morning, everyone. Congrats on the debt refinancing that you just completed. Maybe just first one on the Pratt & Whitney compensation. Can you explain what's the delta between the CAD 77 million—that's the maximum amount—and the CAD 20 million that you recognized in Q2? Does it mean that the remainder amount will be recognized in revenue in the subsequent quarters, or that's a maximum that you can potentially recognize? I mean, how does the accounting work on that?
Yeah. The compensation agreement essentially covers the number of aircraft that we have on the ground per day. We get a compensation per day per aircraft on the ground. Essentially, the $20 million that we booked in Q1 just reflects the number of aircraft times the compensation that we got per day. That means that over time, we will book other additional revenues related to the compensation as we have many aircraft on the ground as we speak. That being said, the agreement caps the maximum amount that we will be able to book over years 2025 and 2026 to $55 million.
I see. Okay. That explains. Do you expect the number of aircraft grounded to continue for the next several quarters?
Absolutely. We don't think that this situation will be settled before 2027. Surely, we will book additional revenues for 2025 and 2026.
Thanks. Was there any incremental contribution from the financial compensation to EBITDA? $20 million is revenue that flew directly into the EBITDA line. Anything incremental that impacted positively the bottom line?
No.
Okay. Perfect. Thank you. The next one I have is on capacity growth. For the full year, I noticed you guys are now expecting 1%. I think in the first half, you have already done more than 1%. It sounds like second half capacity will be modest to maybe down slightly. Any pockets where you are scaling back capacity specifically based on the booking curve?
No. At what we're looking right now, we expect to have a year-over-year increase of capacity of 1.5% for the year compared to 2024. With the booking curve that we're looking at, we don't plan to increase any capacity. Considering that we have six aircraft grounded as well for the upcoming summer, there's no chance we will increase capacity.
Right. Makes sense. Okay. That's all my questions. Thank you.
Next question will be from Tim James at TD Cowen. Go ahead.
Thanks very much. Good morning. I'm just wondering if you could expand a bit on the competitive environment. You called that out as something that's challenging revenues currently. Could you kind of talk about what you're seeing there, the actions of any players that are having a particular impact?
When we're looking at our summer right now, we've seen that there's been a shift in capacity from the U.S. market to South Destination. We've seen an increase in South Destination. That being said, South Destination are performing exceptionally well this summer. We haven't been affected on the U.S. As you know, as we mentioned in the previous quarter, we only operate two routes in Florida. When we look at summer right now, our yields remain above 2024. Load factors are currently slightly below last year. South market is rigorous. The rest, we've seen a little bit of shift as well from some players on the European destination, creating downward pressure on pricing for this upcoming summer.
Okay. Anick, I believe you called out some kind of softening showing up as you look to the fourth quarter. I assume you're referring more to Europe there, the transatlantic. Any particular sort of regions that are weaker or stronger than others, or is it fairly broad-based across your key transatlantic markets when this softness, this kind of slower booking that you're seeing?
It's across the network, exactly on European destinations. This is what we're seeing right now. However, we tend to see a little bit of late-minute bookings. We're being careful when we talk about the outlook. So far, looking at the past weeks, we can see that bookings have been soft on Europe. With the uncertainty in the market, the economic environment, this is a little bit what we were expecting. This is why we're going to be careful looking at the 18 upcoming months. People tend to wait and see what's going to happen, if people are going to keep their job, how the economy is going to move forward. This is what we're seeing right now.
Okay. Great. Thank you very much.
Thank you. Once again, ladies and gentlemen, a reminder to please press * 1 if you have any questions. Next, we will hear from Michael Kypreos at Desjardins. Please go ahead.
Thank you for taking my question. On the new agreement in place for the restructuring of the debt that you incurred in the pandemic, the lower rates and some of the grace periods seem to translate into pretty significant interest expense savings. Do you have an idea of the fair new quarterly run rate moving forward for interest expense? I think you're close to CAD 40 million a quarter right now.
No, we're CAD 40 million a year for the debt, excluding the leases, obviously. So we will be closer to CAD 5 million a year.
Perfect. That's helpful. In terms of the new favorable agreement in place for the debt, would you say that you now have a new realistic leverage target, maybe over the medium term, that could be realistic? Maybe some timeline guidance on how you're going to get there?
Yeah, of course. Obviously, getting out of this transaction, we understand that our leverage is not quite in par with industry standards. We would certainly look over the next, I would say, 18-24 months to get back in more normalized levels. I would say that over 18-24 months, we should be closer and below 3.5 times. The objective, obviously, is to go closer to 2.5 times.
Perfect. I really appreciate the caller.
Thank you.
Thank you. At this time, it appears we have no further questions registered. Please proceed.
Thank you, everyone. As a reminder, our 2025 third quarter results will be released on Thursday, September 11. Have a good day.
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect.