Transat A.T.'s (TRZBF) CEO Jean-Marc Eustache on Q2 2016 Results - Earnings Call Transcript

| About: Transat A.T. (TRZBF)

Transat A.T. Inc. (OTC:TRZBF) Q2 2016 Earnings Conference Call June 9, 2016 10:00 AM ET

Executives

Michel Lemay - VP & Corporate Affairs

Jean-Marc Eustache - President & CEO

Denis Pétrin - CFO

Analysts

Mona Nazir - Laurentian Bank Securities

Benoit Poirier - Desjardins Securities

Cameron Doerksen - National Bank Financial

Kevin Chiang - CIBC World Markets

David Tyerman - Cormark Securities

Operator

[Foreign Language]

Good morning ladies and gentlemen, welcome to the Transat Conference Call.

[Foreign Language]

I would now like to turn the meeting over to Mr. Lemay, Vice President & Corporate Affair.

[Foreign Language]

Please go ahead, Mr. Lemay.

Michel Lemay

Hello, everyone and welcome to the Transat conference call for the presentation of the financial results for the second quarter ended April 30, 2016.

I'm here with Jean-Marc Eustache, President and Chief Executive Officer and Denis Pétrin, our Chief Financial Officer. As usual Denis will review the financial results and we will then answer question from financial analysts. Questions from journalists will be handled offline. The conference call will be in English, but the first questions may be asked in French or English.

As usual our investors' presentation has been updated and is posted on our website in the investors section. Denis will eventually refer to the presentation in his comments.

Today's call contains forward-looking statements. There are risks that actual results will differ materially from those contemplated by these forward-looking statements. For additional information on such risks please consult our filings with the Canadian Securities Commission. These forward-looking statements represent Transat's expectations as at June 09, 2016 and accordingly are subject to change after such date. However, we disclaim 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 law.

With that, let me turn the call over to Denis.

Denis Pétrin

Thank you, Michel and good everyone, we are reporting today our numbers for the second quarter and for the winter season during which Sun destinations represent the lion share of our revenue. We are also delivering our outlook for the summer during which Transatlantic destinations represent the bulk of our business. We will also say a few words with respect to the sales of our French and Greek operations as well as on our development plan.

As announced in our March, forecast our results for the quarter and the winter are disappointing. Disappointing because trends were visible at the beginning of December for Sun destinations did not hold. At that time bookings were ahead compared with the previous year and margin were similar. Therefore, we were anticipating an improvement in our winter season results. However, despite our efforts to decrease our costs and improve our margins, fears related to the Zika Virus and the threat of strike action of Air Transat pilots have negatively impacted our winter results. Although it is difficult to isolate or put an estimate on the actual impact of the Zika Virus and the labor relations issues, it happens at a crucial time right in the middle of the booking period leading to the school break. From then on, there was a tipping point and booking trends and selling price in the data clearly showed an unusual and significant slowdown. Furthermore and once again the weakening of the Canadian Dollar was in that major challenge.

During the winter season our main market is selling packages down south and is significant portion of our costs is in U.S. dollars. Rooms, fuel, aircraft rent, maintenance to name a few, the variance year-over-year for the winter amounted to additional cost of $65 per sent package or $49 million for the winter period. In the end and considering the other factors nearly 60% of that increase was reflected in our average selling prices, the remaining to be absorbed by Transat. Like we mentioned during our last call over the last three winters the dollar cost us $150 million on accumulated basis. In other words, the combined effect of U.S. dollar and fuel has made our operating cost going up, offsetting the impact of Air Transat for gain, we have managed to realize.

A quick note regarding our results; considering the sales of our French and Greek operations you might have noticed we are now reporting French and Greek operations as discontinued operations assets held for sales and liabilities related to assets and for sales. Accordingly, the following information refers to continuing operations unless mentioned otherwise. For Q2 our market combined results from continuing operations whereas revenue was $880 million, up 1.5%. We posted a net operating loss of $5 million versus an adjusted operating loss of, operating income of $8 million last year. The adjusted net loss is $12 million compared with $3 million in 2015. The net loss attributable to shareholders as per financial statements is $25 million which take into account $16 million non-cash expense regarding asset impairment and a $4 million non-cash loss resulting from head account.

On our Sun Destination program, our main market during the winter, capacity was up 0.7%, selling prices of packages was up 2.7% but the mix was different year-over-year. Our lowest factor was 91.1% similar to last year. Fears of Zika and pilot strike affected demand and we had to adjust pricing to attract customers. The impact of USD net of fuel and packaging represents $59 per traveler or 4.1%. We managed to pass nearly 50% of the cost increase to the customer in Q2. In the end margins were then lower by 1.3% versus last year.

On Trans-Atlantic routes, which is a low season for us, we have 20% more capacity than last year mainly on Paris. Selling prices were down 3.8%, load factor was also down 3.8% to achieve load factor of 86.6%. The decrease in load factor is in part attributable to the impact of terrorists' attacks in Paris last fall. Cost per passenger was down caused by lower fuel cost. In the end margin on the program were similar than last year in Q2. In France this continued operation the margin for the border was better than last year. We must all remember that 2015 was a very difficult winter for lots of reason.

Ocean hotel, now where we own 35% contributed $6.3 million to our quarterly results compared with $3.7 million in 2015 as a result of stronger US dollar. In some, the book value of our investment stood at $102 million as of April 30. So it's difficult water and same [ph].

Now our summer outlook; as we highlighted last quarter, there is a significant increase in the number of seats put for sale for the 2016 summer season on the Trans-Atlantic market which is our main market in the summer leading to 15% increase in capacity. Transat's capacity for the summer season is 7%, 62% of that capacity has now been sold. The load factor are inferior by 3.3% and fares are inferior by 6.3% as we speak but we all have to take into account that the impact of the fuel, net of currency represents a favorable variance of 4.6% than half of the variant in load factor and fare.

On the Sun destination market it's the low season during the summer. Transat capacity is at 1% lower than last year, 45% of the capacity has been sold. Load factors are down 1% and fares are up 1.8%, the impact of the weaker Canadian Dollar that's from lower fuel cost will represent the 5.5% increase in our operating cost if the dollar and the fuel remain where they are today. At this moment the margins are lower by 2.4% for that segment of activity versus last summer.

In France, bookings are up 10% on long haul destinations and are also up on medium haul destinations 6%. Selling prices are similar to those of last year. If the current trends hold the summer operating income will be inferior to last year. As part of the strategic plan leading to 2017 we will continue to reduce costs and improve margins to get to $100 million over three years compared to 2014, which represents $30 million for 2016 and $25 million in 2017. Aside from margins the top priority is to invest in hotels and then extend our footprint as our hotel continues.

The second priority is to enter the U.S. and the U.S. market as a distributor. We expect to succeed our four operating units in France and Greece in the course of the year. As announced on May 11, we received a firm order from TUI for €54.5 million, obviously subject to working cap adjustment at closing. We are in process of obtaining the approval from anti-trust authorities as well as the Advisory of opinion of Transat France Works Council. We reiterate that this transaction will have no impact on Air Transat operation nor on our Trans-Atlantic program. We are still considering that the closing of this transaction will take place before the end of this year before the end of the year and October 31.

Now for the balance sheet; corporation free cash totaled $441 million as of April 30 for continued operations versus $442 million a year ago. The free cash of April 15 includes $30 million from discontinued operations. Important to note here that our number for this year in the balance sheet only take into account continued operation where the one we are comparing with are the one that were posted at the time than they are including the French and Greek operation than when you compare important to keep that in mind.

On an apples-to-apples basis for our cash position at the end of April represents an increase of $13 million. Our credit facilities remain unused. In addition, deposits from customers for future travels for continuing operations were $484 million compared with $512 million at the same date last year excluding France. Of balance sheet agreements, for our plane at Air Transat stood at $746 million at the end of April. We intend to renew our NCIE program in the coming weeks. In conclusion we are of course very disappointed by the results for the winter. Fear of Zika and the possibility of pilot strike came at a critical moment when bookings typically peaked.

Furthermore, summer results will not be as good as last year which was our second best ever, but the fact remains that our organization is in much better shape than it was some year ago. In the last three years we deliver our best summer results in the history of the company. We implemented a more flexible fleet unique in the industry and will adapt it to serve very different leisure markets soldering the winter and Transatlantic summers. We have initiated the process of selling out our tour operating units in France and Greece as described earlier and very important we have a solid balance sheet which is the foundation of our plant.

It now completes my presentation and let's now proceed with your questions.

Michel Lemay

So Tommy, you can now open the floor to questions.

Question-and-Answer Session

Operator

Absolutely.

[Foreign Language]

Thank you, ladies and gentlemen, we will now take questions from only the analysts. [Operator Instructions].

[Foreign Language]

The first question from Mona Nazir of Laurentian Bank. Go right ahead.

Mona Nazir

Good morning and thank you taking my question. So firstly, I just wanted to go into your winter capacity. You were going to be a leader in the market, your plan changed in regards to capacity when you saw over capacity in the market but also a challenging end market. Looking at the summer specifically the Transatlantic, your capacity is planning to be up 7% versus the market of 15%, you think that the levels will hold in or similar to the winter do you think that there could be some material change?

Jean-Marc Eustache

You mean for the summer coming or for the other summers?

Mona Nazir

Nope, for the summer coming, yes.

Jean-Marc Eustache

The capacity at the beginning was 16% higher and it went down to 15% for all the players. And as we used to have 8% now we have 7% and so maybe there will be a little bit less capacity for the end of the summer. But mainly it will stand as level especially that the two player adding capacity are on one side, really Air Canada, and on the other side are West Jet. So for sure, I don't think they will downsize their capacity.

Mona Nazir

And just secondly, turning to your European Division, Thomas Cook reported pretty weak outlook forward bookings were down 5% which created some pressure on the stock. TUI has been having some challenges in France. I am just wondering how your France and Greek business is comparing to the overall market. Are you faring better? And with that said, do you think the divestiture will be completed or is there any reason that TUI could perhaps retract the offer?

Jean-Marc Eustache

The market right now for Transat France is good. It's not lower than last year, it's better. And as you know last year we finished almost breakeven, this year we are pretty sure that we are going to make a profit. So for sure there is challenges but load seems in good shape, Transat France also, and this will not change the sales of Transat France and Tourgreece at the end of the day. It will have to be really something completely different and just market changing to that the sale will be impossible. But I'm sure at the end of the day they will be happy to buy load and Transat France because our business is not bad this summer, anyways, better than last year for sure.

Mona Nazir

Okay. And just lastly, in regards to your excess cash position it's bolstered by the sale of France Greek by about $80 million, you just spoke of investments in the hotel business, is that the first priority or are you still looking at potentially US acquisitions or a larger share buyback?

Jean-Marc Eustache

Okay, so to answer one by one the question, the number one priority as we said will be acquisitions of hotels and hotel chains so we are working on that for the past year. So we will be on that full time and we hope that at the end of this year so before the 31 December 2016 to announce something, we have, we are talking to few hoteliers about that. That's too bad but today we cannot say the name or where we stand but we are working on that on the full time basis. So that's priority number one, priority number two will be after finishing the hotel acquisition, looking at the US acquisition, we talked to the big players there they know already what we are doing so it will be second part or the third part of our plan and as today and talking also to the Board of Transat, we are not, we will not right now do a major buyback of shares of Transat. But for sure we will quietly put that, the buying shares when it's time and this will be put at place in the next few weeks and we will do what we always said about that so ready number one, hotel; number two, US and no big buyback of shares.

Mona Nazir

That was very helpful, thank you.

Jean-Marc Eustache

Welcome.

Operator

Thank you very much.

[Foreign Language]

The next question is from the line of Benoit Poirier with Desjardins Securities. Go right ahead.

Benoit Poirier

Yes, good morning gentlemen, just to come back on kind of the cash deployment opportunities, I am just wondering what would be the surplus cash once the divestiture will be completed?

Jean-Marc Eustache

Depending on the size of the acquisition you could be having no more cash at the end of the day. We are working with different size of acquisition so we will use the cash that we have and maybe we will need more cash depending on the size so we will see after the acquisition is done, we will announce when we are ready for that and how much amount of cash do we need, how much are we spending but for sure we will keep some cash in the company in case of something happens. Like we always said, we need to have always a certain amount of cash, around $150 million that will not be used for acquisitions or for something else. It will be used if it's necessary, if there is problem somewhere for one reason or another. But that's going to be the use, the left cash will be used to do the acquisition.

Denis Pétrin

And in order to evaluate that amount Benoit, we were saying last year that our excess cash on top of Jean-Marc referred to as reserve the amount we will always need the $150 million, we expect to have roughly $120 million by the end of the year before receiving the cash for the sale of France and if we were to receive the $80 million as we expect then $120 million plus $80 million, total of this is $200 million. Then this is the starting, this is what we have in our hand that our plan is to deploy that.

Benoit Poirier

That is perfect, that's what exactly the number I was looking at and now in terms of priorities number one is on the hotel but how would you compare the decision process of investing in hotel as opposed to a US distributor. I am talking more specifically about the return on invested capital that the EBITDA margin profile and what type of synergies it could have with the rest of the business?

Jean-Marc Eustache

As you know the hotel business right now is making good money and for sure the price will not be cheap. That's for sure. But the return is very good on the hotel side of the business, number one; number two, like that we will have exclusivity for our business in Canada even if most of the hotels, the rooms of the hotels will be the sale of in U.S. and in Europe and also in Latin America for sure, that without Transat and to buy, to have an acquisition in this solution in U.S. will be to sell again those hotels and to sell other hotel that we have already agreement with to be insured that with that better agreement, better prices, we are bigger but at the end of the day, the return on investment will be better with the hotel. Even if we pay a good amount of money at the beginning and it's something that we are going to build over the years, we'd grow that over the years.

So at the end of the day like I said for a couple of years now, like we said in our business plan for 2015-2017 Transat will be at completely different animal. It will not look like it is today. It will have two components making money. One will be the hotel side, the other one will be the airline selling seats to everywhere in the Caribbean, Mexico, Europe and will develop new destination with the airline in the next few months and distribution will be used to sell the hotel and to sell the airline and distribution means the tour operator, travel agency or home network franchisee, affiliate, travel agency, owned corporate owned by Transat.

Other Travel Agency where we have agreement all across Canada and for sure call center and internet, we are investing a lot of cash right now in the internet and we will have a new site coming in September, Transat site that will be completely different than what we have today and as you saw already we changed the Air Transat site and is a lot more efficient and is selling very well. So distribution will be part of Transat but will not be the main things of Transat. Transat will be more supplier of rooms and seats and distribution at the end of the day will be to sell those whom and those seats and at the end of the day if we make a little profit with the distribution we will be happy and as today Transat is more a wholesaler and Transat in the next few months will not be just a wholesaler and an airline.

Benoit Poirier

Okay, perfect, very good color. And now looking specifically at the UK, looking at British Airways capacity expected to be down 4% this summer. I'm just wondering if you could provide more color about the potential impact from the rig feet in the UK and whether it has implication on Transat and whether you are deploying the capacities elsewhere.

Jean-Marc Eustache

Okay, if I look at the London market, the Heathrow and Gatwick, the market is growing by 22% from Toronto to London to Gatwick this summer and of those 22% Air Transat is eyeing 7000 seats so 5% of what we use to have. So we used to have 150,000, we will have 157,000 seats but as you know one of our competitors that was just on the Heathrow, now is going on Gatwick and he is eyeing big capacity on that. And the other one that was not on Gatwick is coming on Gatwick this summer. So to give you an idea the one that is on Heathrow is adding approximately 40,000 seats and on top of the almost 600,000 seats he is got on Heathrow and the other one that was not there is adding 156,000 to 157,000 seats so the market is growing a lot in London, number one 22% on global capacity. So the capacity was around 1 million, now is around 1.2 million so more than 200,000 seat added there.

If we look at the global market in the UK, then the market will be 20% more than last year, so last year was about 101 million 150,000 seat. This year it will be almost 1,400,000 seats so 235,000 – 240,000 seats more which is 20%. Adding by again really couple of players Transat is adding a little bit but not that much on that market so part number one, UK market is really stretched with over capacity and if you look at the prices on the internet and all that, you will see the prices are very low even in the peak season. Best said, I think we will have a little bit of effect but I think that effect will be more the soccer game because we know by for a long time now that every time there is a big competition, soccer game in Europe, European are not travelling so for sure it will be a little bit less European coming in that period, during that period.

What we see also in the market right now globally its European are coming more to Canada but Canadian are travelling less from Canada to Europe this summer so that's why we are saying that we think that our sales, the load factor, the capacity and what's happening in Europe with terrorist attack and all that, we are saying that next six months, next summer will be tougher so we will still make money but we will make less money and because of all of that and especially the adding capacity was really too much at the end of the day. But we have to live with that, that's part of what's happening right now so we will face that then we will go and work with that and fight with that, those 15% globally the market.

Adding 15% in the market it's really a lot for us. We are sure we can adjust and we adjust if necessary especially in the beginning and end of the season when it's necessary. But I don't think at the end of the day many people will do what we are doing so that's the way the market looks right now.

Benoit Poirier

Okay, and last one for me. Given the overall capacity in the market I am just wondering whether you would be interested in making some partnerships outside the hotel business and if it will make sense for you?

Jean-Marc Eustache

With the airline business you mean?

Benoit Poirier

Yes.

Jean-Marc Eustache

No, no. What Transat is doing right now and will do more and more is as you know we start to do some domestic flight, at very specific time like Vancouver to Toronto, or Montreal to Toronto, or Toronto to Montreal. We are doing that with the 737 to bring people to our flights from Toronto, from Montreal, to Europe. So for sure we would land more and more. This year we did a lot more, double the size of that program from last year is doing -- last year was the beginning, so we start, this year is doing very well. So for sure we will more and more on that and the other thing that we will do it, we'll do a lot of connection with other airline like us, low cost airline or leisure airline from different region of Europe so that our passengers can continue. So for sure we are working on those agreement right now, we will not be part of the big things like One World or all those star airline or something that we'll do our own things with airline like us and we're working on it, we're going to add computer system to do that and it will outburst to continue to develop our program in Europe. And like I said, next summer we will have new operation to other destination and even other continents.

Benoit Poirier

Okay. Thank you very much for the time.

Jean-Marc Eustache

Thank you.

Operator

Thank you very much.

[Foreign Language]

Our next question is from the line of Cameron Doerksen with National Bank Financial. Go ahead.

Cameron Doerksen

Thanks, good morning. I guess just my first question, just want to make sure I understand the risk of TUI walking away from the deal that you have with them. If I understand it correctly, that they can't walk away contractually just because the markets conditions have changed, it has to be something much more significant than that which there will be like a forced measure clause or something like that?

Jean-Marc Eustache

I cannot give you what is in the agreement because it's confidential agreement. So I cannot say to you everything, I will not allow doing that. But if the market conditions changed like it's changing right now, I don't think so that they could or they would, especially they would because at the end of the day like I said, Transat trends is doing not bad. I will say good, maybe I'm going to regret at the end of the summer that reselling Transat trends.

Cameron Doerksen

Great. Okay, that's good. The second question maybe Denis, there is an impairment charge I think largely related to the new booking platform if I read that correctly. Can you just explain what that is?

Denis Pétrin

Yes, it's the write-off that we spoke this quarter. It's already trademarked and as we were saying for few quarter now, our strategy so put in the face of the customer more and more the brand turns up but we have other brands that we have purchased overtime that we are using less. I would use the example of Tour Mont-Royal where today all the products that we are offering on are on Transat holidays and because of that there is a task that you have to do when you don't use a trademarks and that's the reason why we have depreciated the value of this trademark. This is one example.

Another example of that, also in sync with what I just said about the strategy of putting the name Air Transat in the center of everything we are doing, the brand can interfere. When people are buying in the UK, more and more people are buying directly to -- on the site of Air Transat than support the value of the brand. And again, in the end we have the same numbers but more numbers of passenger that we had say in the previous year but they are more in the channel which lines that then they are in the channel, that's another reason why we have this depreciated value to the trademark that we had in our book for interfere.

All of this is really in sync with strategy that we have again to use the name Transat like everywhere. You're also seeing that we used to have Mount [ph] for focus on travel agency. We used to have Marlin Travel brand used in the rest of Canada. Now you have to visit those travel agents, they have the name Transat. Then again, for that reason I have to persuade a certain amount of the value that we have for the trademark Marlin Travel, all in sync with plan to the main Transat everywhere.

Cameron Doerksen

Okay, no doubt, that explains it. Maybe just final question, I think that investing in hotels and some destinations certainly makes a lot of sense. If you become a much larger player as effectively a hotel operator, how does that affect your relationships with other hotels? I mean is it -- are there other examples you can give where it doesn't affect your relationship as a tour operator with some of those other hotels?

Jean-Marc Eustache

Not really because at the end of the day even if you still have a lot of hotel chains in the Caribbean and makes scope like NCP or bear All-Star or Media [ph], they know what we are doing because like I said, we went to see everyone and we talked with everyone to strike a deal. So they all know that we're going to do it and they all know that we'll never have enough rooms just with more own hotel change to satisfy the Transat and at the end of the day even for those trends, and even for our chain that we're going to have it, the Canadian market is a small market, it's a market about 40% of the number of rooms that they sold because the main market is USA. So at the end of the day, I don't think and other are doing that. We have one competitor in Canada doing it and he is doing very well with that. And if you look at the bigger tour operator, big travel company like TUI. TUI owned Rio and partly TUI and at the end of the day and they have ordered trends that they own, Robinson and all that and they work with other hoteliers. So at the end of the day I think today it's something that the hotelier accept and will not affect more sales with the other hotel chains.

Cameron Doerksen

Okay, that's very good. That's all I have. Thanks very much.

Jean-Marc Eustache

Thank you.

Operator

Thank you very much.

[Foreign Language]

The next question is from Kevin Chiang from CIBC World Markets. Go right ahead.

Kevin Chiang

Hi, thanks for taking my question. Maybe just a follow-on on Cameron's question on the hotel growth strategy. Just wondering if that changes how you pick up the capital structure of the business? As you grow the hotel business would you look to take on more reported debt or how do you view your capital structure as you grow hotels?

Jean-Marc Eustache

Obviously when you talk about that kind of or that sector of activities, we require more capital than what we -- the sector that we are in today than depending on the size of the target, obviously it will affect the structure of capital of the company. And when you're talking about change with a significant size, I mean few hotels you start to think about big stand [ph], if we end up by deciding to going to that direction for the size I'm referring to then it means that in the end there is always a -- you could start by financing those assets, let's say with debt, locally or not locally, you could get to 50%. And the rest of it, it has to come from -- I would say from Transat than we have access cash. And if this amount is not sufficient in the end then we'll look at other than it could or modify the structure of capital of the company. Obviously, today as you know we have no debt on our balance sheet, the only debt that we have is off-balance sheet one related to our fleet because we have commitment to pay to those -- the owner of the plane, the rent on those aircraft upto the end of the term, terms are going four or five or seven years then being when you signed than obviously it affects the structure of working, it will affect the structure of the capital of the company.

Kevin Chiang

Okay, that's helpful. And maybe just, when you're thinking of these growth opportunities like moving into hotels and distribution, it makes sense as a way to diversify your operations but when you're running the math, is that the primary drivers here that kind of produce the cyclicality of your earning stream to improve earnings visibility versus maybe improving return-on-capital. Does return-on-capital play a key role in how you decide where you expand into or is this primarily trying to improve margins overall and margin visibility overall?

Michel Lemay

I would say what we're trying to do here is to achieve both obviously. First is to assure better results like every year for the company by -- like Jean-Marc explained, that been only involved in distribution but lean more in the products, being of the products at destination, also having the product here we're talking about bringing Canadian to places where they could not grow using their car and then we have fleet necessary if people want to go there again to buy seeds [ph] and the purpose in the end is to be -- to have the products, to control the products, then go down and see.

The other end obviously, it would require cash to do that, it's required cash from shareholders than the return of investment is obviously very, very important. And that's why in the second spend, as Jean-Marc alluded to also at the beginning, entering into market like the U.S. market is still very important for us to balance the numbers of clients that we are bringing down south and not only having the constraint of the Canadian market where people travel mostly on the winter but by heading that sectors of activities it will assure a flow of customer and more concerned flow of customer, all year around and that will be a big plus for hoteliers because of them and we have explained that many time.

When you negotiate with hoteliers and what you offer to them is to fill their hotel in the winter and not being able to bring many, many client during the summer month, it's less interesting for them than bringing the constant flow of customers than the end game for us is to achieve both.

Kevin Chiang

That makes sense. And just last one for me and I know you mentioned it in your prepared remarks that it's tough to quantify the impact of the Zika virus but you did see total tablets increase year-over-year in the winter, so I'm just wondering when you think of the impact of Zika, it would have primarily be on the yield front that you saw lower fares to stimulate traffic for concerned travelers. And then where were you seeing the biggest impact, if you could just highlight which destinations did you saw the biggest impact from Zika and if things are starting to flatten out there. And maybe any implications for the summer as it relates to this trend?

Jean-Marc Eustache

When you see at the end of the season, that -- it's the same number of seats in the market that was put by the end of the season, this winter season than last year, so the people adding capacity at the beginning quietly they downsized the capacity. It was approximately in the market that we are to be clear because that's the way we look at the market; we don't look at market where we not are. So in the market that we are, it was 4 million thousand seat [ph] and this winter was 4 million thousand seats. So there was the same number of seats at the end of the season. At the beginning there was more seats than that but at the end that's the way we added the season. Saying that, we see our results that are not good but you see that competitor determines that it was the ever worse winter he never saw in his life and this gentleman has seen the business certainly bit longer than me. And when you see the figures, of what is that saying, it was tough also in the leisure market and when you see the figures of the other competitor, the aligned competitor, the market was down, down especially on load factor.

So at the end of the day, for sure, what happened it's few things. In the western markets, especially Alberta, Saskatchewan and all that that was really tough. I'm not talking about British Columbia. The market was tough. The other thing that happened, the forecast -- because that forecast was [indiscernible], it was not in English. At the beginning of the season, so that start really bad this season at the beginning, and after that there was the Zika. So it's hard to say and us we have some patients rarely -- that was the announce of maybe a strike of the pilot of Air Transat few weeks before the main -- the market was most important for us, it's even more important than during Christmas time, it's really when the -- it's the school break. So few weeks before this announced, almost kill us with our sales going down by 30% day after day after day. So all of that -- so for us, that's happened to us but when you see what the other are saying or what's happening with the others, I suppose that they support. And one of our competitor that used to add capacity years after years after years, for the first time in his life didn't add any capacity last winter. So I think at the end, so how much exactly because that is difficult to see but it cost millions of dollars for sure to all the two operators of all the allies going in the Caribbean and in the Mexico market.

Kevin Chiang

That's helpful. Thank you very much.

Operator

Thank you.

[Foreign Language]

The next question belongs to David Tyerman with Cormark Securities. Go right ahead.

David Tyerman

Good morning. My first question is on the summer outlook. So I'm wondering if you could give us an idea of how the trends are progressing. I noticed that your percentage of seats sold on the Trans-Atlantic is down I think 62% this year, 55% last year. And I also noticed the pricing trend from what you gave last quarter to this quarter is down. So pricing and how hard it is to fill the plains, getting worse as the season progresses.

Jean-Marc Eustache

What we observed after the month of March when we posted our -- when we gave the first outlook of the summer, at that point it was really, really tough period where it was tough to take booking and pricing was very, very competitive. More recently numbers are more in line with what we are seeing today. Again, it's impossible to comment on what will happen in the coming weeks and upto the end of the season. But it was -- I would say that it was very, very tough few weeks ago to get to the numbers that we have presented today and more recently, we're more in line with the average of what we are sharing with you today.

David Tyerman

Okay, that's helpful.

Jean-Marc Eustache

Again, there is a lot of capacity, we'll see -- we'll evolve upto the end of the season.

David Tyerman

Sure, that makes sense. My second question was on the hotel side, so I'm wondering if you can give us some thoughts on how we should be thinking about this from modelling standpoint. It's a single line item right now but it sounds like it's going to be a bigger item as we go forward. And I really don't have any idea how I should be forecasting this. Can you provide any insights into that?

Jean-Marc Eustache

A few numbers that you could find in the reporting -- that in the MD&A and places like that. Today the numbers that we are reporting one line is our 35% share than easy to determine what the result will be on a 100% basis. And after that the income tax rate are in the range of 20% and revenues that we have generated, the JV generated on a 100% basis is roughly $100 million. And the EBITDA for this kind of business is in the size of 35%, say in 2015 than if we were to have ocean down 100% [ph] to use that as a comparable and this is all you could get to the numbers. This accompanies that we are in, have a very good profitability than -- I think it's a good benchmark, and that's the one that we know, that's the one that we are sharing with you when we are posting numbers. Again, there is numbers here and there in our reporting but the one that I gave you are coming from the document that -- from different places in what we are putting in the document that we're posting on a quarterly basis.

David Tyerman

Okay, that's very helpful. So when I'm thinking forward, you talked about growing the rooms quite a bit. Should I be using the room growth against those numbers as an idea of how the profitability of the venture could grow?

Jean-Marc Eustache

I think it's a good proxy.

David Tyerman

Okay. And can you remind if I don't have it in front of me, what you were -- where you were in 2015 and where you're going on the rooms?

Jean-Marc Eustache

Our ocean [ph] downs?

David Tyerman

Yes.

Jean-Marc Eustache

Give me just a second.

David Tyerman

It might be in your presentation, I just don't…

Denis Pétrin

What we have as we speak, a hotel that we own and manage 1600 rooms. They are in Dominican Republic and Mexico, a hotel that we manage, 1600 rooms, same number. Those one are for hotel that we are managing in Cuba, obviously in Cuba we do not own those hotel but we manage them. And the purpose for us is to get to 5000 when you have the two by the end of 2017. And it means that if we're to look at 2017, I would say that we have a land that we intend to complete the construction on than the numbers of hotel that we own over 1600 to 2500 rooms. And we probably get more -- in the JV we'll get more hotel to manage than from 1600 we'll probably go to 2600 or something like that and by adding the two we'll be at 5000 plus probably, this is the plan and with our partner in the JV, the plans are on the tables and they are already in process of -- they are -- one of the hotels that we will manage is under construction right now, it's more than idea they are real plan that we are having together.

Jean-Marc Eustache

That Denis -- that's the JV, that's obviously end on 65%. So it's just an example to be sure that people don't think that it's an example to give you figures because you can look at all other company, public company in this business and you will see the figures, how much they made and you know Males [ph] mainly public company in the Caribbean and Mexico, so you have others like that. So that would give you an idea about how much you're making.

David Tyerman

That's very helpful, thank you. And then my last question was just on the U.S. side, could you give us an idea of what you hope to be timing on doing something there and also what exactly you're looking at? Would this be straight tour operator or would this be more like Transat where it has a tour operator and some kind of airlift capacity or capability?

Jean-Marc Eustache

Okay. So first, like we said, we'll do the hotels, so this one is for the hotel. We think we're in discussion with couple of different hotelier, more than a couple I should say to be frank. So this we think that we can add up with an agreement that does mean that we will add finish to tight one of them by December 31 because after that we have to do the due diligence and all that. So, but that's part number one. Part number two, when we look at the U.S. business, we're looking at two different type of organization, one is OTA, the other one is tour operator. And in the U.S., no two operators now owned airline, they all use existing airline, U.S. airlines or they are bringing planes from companies, like Canadian company, one is using Canadian company or European company to add some lift because what happened in the United States before that the tour operator used to have the airline and they didn't succeed with the airline.

So finally they did agreement with around 2007-2008 with the U.S. airline and now the U.S. airline business is very good, so they are not interested anymore with the tour operators or the OTA or all that to things they are doing by themselves, selling the seats. So what's happening is all those tour operators, OTA and the guys like that are now using lift, not just from the schedule or lower cost airline from the U.S. but also from overseas or for Canadian airlines. So the one that we're looking at couple of one, we know them for years and just the timing for us when into EBITDA [ph] timing of doing it, at the end of the day for sure, they are looking for lift. So we will give lift to the tour operator or the OTA or the organization that will buy, we're giving some lift or their Transat lift to go in the Caribbean and Mexico.

David Tyerman

So you can actually use Air Transat aircraft, fly out of the U.S. into the Caribbean?

Jean-Marc Eustache

Yes, if you do on the Riverspotter [ph]. So that's being to give you an example; if you do apply to -- I would say Toronto, Montigovey [ph], anywhere in the U.S., back Montigovey and I said as you could do another destination in the U.S. and after that back to Canada. It's happening right now. You have -- that I know about three tour operator, four I would say, using even a Canadian airline.

David Tyerman

Interesting. So sort of a way around sabotage [ph] it sounds like. Okay, and so the time -- so sounds like to see their hotels or tour operators in the U.S. or maybe both is what you're looking at?

Jean-Marc Eustache

The hotel, first.

David Tyerman

No, but did you say hotels in the U.S. also or…

Jean-Marc Eustache

No, not down in U.S., hotel in Caribbean/Mexico and tour operator, OTA, U.S. Air Transat will be used for Canada and will be partly used to do in the U.S. market with the U.S. Company that we will buy it one more.

David Tyerman

Understood. And for the U.S. tour operator, the thing that you're looking at is this 2016 thing or more, 2017 thing?

Jean-Marc Eustache

2017.

David Tyerman

Okay.

Jean-Marc Eustache

Not this year.

David Tyerman

Perfect.

Jean-Marc Eustache

We have to do one by one.

David Tyerman

Understood. That's very helpful. Thank you.

Operator

Thank you very much.

[Foreign Language]

The next question is from Tim Jones [ph] with TD Securities. Go right ahead.

Unidentified Analyst

Thank you, good morning. Denis, I just want to confirm the indications you're giving for the JV profitability, the hotel JV profitability. You indicated revenue in fiscal 2015 of approximately US$100 million and then EBITDA of US$35 million. Is that correct?

Denis Pétrin

US$35 million, because the revenue in the JVs in U.S. was 35%, yes.

Unidentified Analyst

And then your share being 35% of that?

Denis Pétrin

Yes, when you dig out the interest and the income tax and we get our 35%, what remain in the end and you get to our numbers that we are hosting in our financial statement.

Unidentified Analyst

Right, okay. My next question then, just a number, I'm not sure Denis whether you would have this in hand. I'm wondering what the decline or maybe the better way to ask the question at the end of Q1 just from continuing operations, what would the balance of customer deposits of that liability have been if we just had kind of continuing operations? I'm just trying to get a sense of sort of the seasonal change from the end of Q1 to the end of Q2 on a apples-to-apples basis?

Denis Pétrin

I'll have to get back to you on this one.

Unidentified Analyst

Okay, okay, that's fine. Thank you very much. That's all the questions I had.

Denis Pétrin

Okay, thank you.

Operator

Thank you very much. Mr. Lemay, we have no further questions on the line. I can turn it back to you.

Michel Lemay

Very good. So thank you everyone. That will conclude our call for today. I would like to remind everybody that the release of our third quarter results will be on September 7, 2016. And thank you very much and good day.

Jean-Marc Eustache

Thank you very much.

Operator

Thank you, everyone.

[Foreign Language]

Ladies and gentlemen, this conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day everyone.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!