Two new competitors may be ready to shuttle passengers from Canada to Europe by summer but Transat A.T. (OTC:TRZAF) investors probably don't need to worry as much as the seem to be, says BMO Capital analyst Claude Proulx.
Transat shares have fallen steadily all week, losing 10% since last Friday. Reports surfaced this week that tour operator Go Travel Direct is hooking up with a Finnish airline and will offer flights to Europe. while defunct Zoom Airlines may be resurrected by Globe Span Capital, a private-equity firm chaired by Kingston businessman James Hultquist-Morrissey, to do the same.
Both potential entrants noted low fuel costs and eased regulations as impetus to enter the Canada-Europe market.
Mr. Proulx said in a note to clients:
Though increased competition in the summer season is a clear negative for all competitors, particularly in an environment potentially exhibiting very weak demand, we feel these new entrants will be challenged and are unlikely to survive if they launch operations.
The need to build a distribution network within a few months of the beginning of the busy selling season and a lack of credibility should be significant issues for these new entrants.
Mr. Proulx said Transat will be strong competition to overcome and he continues to rate the company "outperform" with a C$12 price target.
"[We] would see any softness as a result of these announcements as a buying opportunity." he wrote.