Transat AT reports robust demand and positive yield trends, forecasting margin growth and improved free cash flow by fiscal 2026 despite one-time costs.

The second fiscal quarter, you and I think the rest of the industry have got a bit of an acceleration of capacity growth. So I'm just wondering if you have any kind of early sense of how yields are faring so far as you look into Q2 and particularly the peak March period. Is it looking positive at this point or just any color there would be helpful.

Yeah. Good morning. So for the winter, we see a momentum being positive. Demand has remained strong enough to absorb additional industry capacity with yields tracking well versus last year, including for Q1 and Q2. So we do not see on balance at this point between supply and demand. We believe that we strongly benefit from the shift in demand from the US market to the South. And the south, as you know, we have a strong presence. So overall, I would say that we have a healthy booking curve right now which supports a positive outlook for Q1 and Q2. Okay, okay, that's helpful. And maybe just a second question, I guess just on the free cash flow, you mentioned that your expectation was for fiscal 2026 that free cash flow would be positive. Obviously you do have some tailwinds here which you highlighted. Just wondering, I guess what you're, I guess assuming as far as CapEx for 2026 and maybe expectations for generating cash from working capital in 2026 that gets you to that free cash flow number. Yeah, well, in terms of CapEx, I think, you know, it's going to be relatively stable from this year from 2025, maybe a bit of upside, but it's not going to be that material. In terms of working capital movements. We have to live with the seasonality that our business is. So obviously that impacts on a quarterly basis that impacts our working capital movements on a overall year over year basis, I don't see any dramatic change in working capital movements. Okay. So the, I guess the bottom line is that the improvement in free cash flow is basically all going to be generated from improving EBITDA. Is that fair to say? Do your math. Perfect. Okay, I'll pass the line. Thanks very much.

Thank you. Next question will be from Tim James at TD Cowan. Please go ahead.

Thank you. Good morning. I'm just wondering, you commented or indicated there was. You don't expect any real impact or any limited impact, I think was what you indicated from the, you know, the overhang of the strike risk on bookings. As you look at the first quarter, was there any, I realized it sort of occurred post quarter end, but was there any sort of anticipation or do you think there was any hesitancy or booking away that Maybe impacted your. Your bookings in the fourth quarter from the strike or potential strike.

Good morning. Yeah, it was a potential strike. Not a strike first. I think we were lucky enough that the strike threat came after our promotions of Black Friday and Cyber Monday sales, which is a key sell moment for us. Then our sales were indeed impacted slightly for a few days starting December 7th. But as you know, we reached an agreement by December 10th. So there was a pretty short period and we were able to get back on our booking curve very quickly. So we decided, you know, to bring forward a promotional campaign that was due two weeks later to recuperate lost sales during these two, three days. But overall, when we look at the situation and take a step back, the impact overall will have remained minimal and we are very satisfied with the overall results.

Okay, thank you. My second question, just turning to the elevation program. It looks like other costs were up in the. Well, it's cited as for the full year, there were some impacts on other costs related to Elevation optimization. I think those costs were actually up $12 to $13 million sequentially from Q3 to Q4. Could you just kind of walk us through what types of expenses the company's incurring that caused that seasonal uptick or sequential uptick from the third quarter into the fourth quarter?

Yeah, unfortunately, I don't see where, you know, where you, you know from. You know, how you're making reference to additional costs related to the elevation program. You know, the overall cost, like, like I said, has been impacted by some unfavorable variances or variations in the unusual, call it unusual, one time provisions. And obviously there's also the increase in payroll related to the negotiation with our pilots. But I don't see where you're making reference or why you're making reference to the elevation program and additional costs related to that, unfortunately.

Okay, maybe it's something we can take offline. There's a reference in the discussion under other that says this increase resulted mainly from costs incurred related to our elevation optimization program.

Okay, I understand what you mean. Yeah, no, absolutely, now I understand what you mean. So essentially, with the implementation of the elevation program, we have one time costs that are related to initiatives that we are implementing over time. And that would include, you know, various items that would include, you know, the consultants that we are working with as an example. So that's essentially, you know, one time cost related to the implementation of the initiatives.

Okay, okay, that helps. And I'm trying to. So there is some non recurring costs in there that will decline, I assume, going forward. Okay, that's absolutely, absolutely.

That's the way to look at it. Yeah. I would add on that some system implementation AI tools that we are implementing across the business that are one time cost as well.

Great, thank you very much.

Thank you. Next question will be from Konrad Gupta at Scotiabank. Please go ahead.

Thanks for taking my question. Just maybe to ask on the provisions first, Jean Francois, can you describe the nature of the two parts? The total $15 million and I think the 5 is from one thing and a few things maybe, and the 10 is for the carbon offset. So can you describe the nature of these provisions and how likely are they to recur in the next few quarters?

Yeah, so the CORSIA provision is quite obvious. You know, it's relating to, it's related to the offset or carbon emissions and it's a calculation that is quite complicated. But that would imply estimating essentially our growth in carbon emissions relative to the industry overall. So that could obviously make that provisions quite volatile. And it's also, you know, as you can imagine, because it's related to carbon credits and offset, you know, the fair market value of the carbon credits also impacts our provision. So it could be quite volatile on an annual basis. And just to put, to give you a bit of perspective on that, you know, our obligation relating to the offset of carbon emissions in 2024 amounted to approximately 1.5 million, which was minimal, you know, obviously, but in 2025 we had to increase the provision by like more than 10 million. So it's quite volatile related to the other type provisions. They're more, you know, one time, one time in nature or non recurring in nature, I should say, you know, there's a few elements. The biggest two I would say are related to one of our vendor that defaulted on its obligations and the consequence was, you know, unfortunately, a, you know, $2 million one time non recurring provision associated with that default. And obviously we will be looking to get compensation for that, you know, for that default and the impact on us. And there's also a sales tax litigation in Italy for that, you know, that came from 2006 or 2007. You know, it's a very, you know, dated litigation. And we had all the information this year that essentially demonstrated that we should book that provision because we don't think that we're in a good favorable position with respect to this element.

Okay, that's very helpful, thanks. And with reference to the winter load factors being softer and pertaining to the second quarter dynamics, just want to make sure the second quarter dynamics, you're referencing there is the capacity growth in the industry. It's nothing beyond that. There's no like labor or there's one sort of one time event.

No, no, no, it's exactly that.

Okay, thank you. And just to wrap things up for me on the margin side, I guess you guys are expecting some margin expansion next year as well. Can you like broadly help us understand, you know, how that margin is being driven next year? And I mean, what are some of the underlying assumptions you have? Perhaps, you know, Canadian dollar could degree but you know, anything else, you know, beat the broad buckets like elevation program or the fuel price assumptions you're making or any of the fleet changes?

Yeah, well, a few things here. You know, first thing, we are improving or we are increasing the capacity. And you know, we have a lot of fixed costs in our structure. So obviously as we increase the capacity in terms of CASM, it's, you know, it's going to have an impact and it's going to have an impact on margins. So that's just natural, I would say, when you increase capacity. So that's one thing. The elevation program, you're right. The elevation program is driving more productivity in our structure, in our business. So that will also benefit to our margins. And with respect to fuel and to fx, we don't expect material improvement year over year. Maybe a slight improvement, but not material improvement in terms of fuel costs or fuel prices and effects. I would add that as I explained, we are reducing significantly the number of AOG of our A321LRs. The A321LR is our most efficient aircraft, which drives margins up. So that's helping us as well in terms of optimizing our network, increasing fleet utilization and therefore driving margin up.

Okay, that's very helpful. Thanks. And all the best for the next year.

Thanks.

Ladies and gentlemen, a reminder, if you're an analyst and would like to ask a question, please press star followed by one on your touchtone phone. Next we will hear from Alexander Argemeri at cibc. Please go ahead. Alexander.

Hey, good morning. Thanks for taking my question. I was just hoping for some additional color on your elevation program. I was wondering if you could break down how much of that 100 million is now run rate realized exiting fiscal 2025 versus it being back end. Thanks.

You know, like, like, like, you know, the objective is to generate $100 million of additional EBITDA by mid-2026. We're on track. You know, we're probably, I would say half of the half. The objective being met, you know, close to that.

Okay, perfect. Thanks. Sandia, can you share any details on the skew of maybe the cost or productivity gains versus some of the revenue gains associated with it?

I'm sorry, I missed the question.

I was hoping if you could share some details on the skew if it's more on the cost and productivity side or if there's a revenue in there as well. For the elevation program specifically.

Yes. Yeah, thanks. Yeah, it's approximately 60. 40. 60. Cost 40. Revenue management.

Okay, perfect. Thanks. Yeah, that was it for me.

Thank you.

At this time, we have no other questions. Please proceed.

Thank you, everyone. As a reminder, our first quarter results for 2026 will be released on March 10th. Thank you and happy holidays.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Thank you.