Transat A.T. Inc.

Michel Lemay - VP, Communications and Corporate Affairs, Chief Brand Officer Jean-Marc Eustache - Co-founder, Chairman, President, CEO Denis Pétrin - VP, Finance and Administration, CFO

Mona Nazir - Laurentian Bank Securities Benoit Poirier - Desjardins Securities David Tyerman - Canaccord Genuity Umayr Allem - National Bank Financial Kevin Chiang - CIBC World Markets

Thank you. Hello, everyone, welcome to the Transat conference call for the presentation of the financial results for the fourth quarter ended October 21, 2014.

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 through our regular channel. Conference call will be in English, but the first questions maybe asked in French or English.

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 of December 11, 2014 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.

Thank you, Michel. Good morning everyone.

We are reporting today our numbers for the fourth quarter and for the entire year 2014 and this October 31st. Our results for the second half of the year are driven primarily by the Transatlantic market.

Last September commenting on our Q4 summer outlook, we said that we are expecting results to be in [similar] [ph] compared to the record results of summer 2013, but nevertheless satisfactory. As we will highlight in a minute, results from the Transatlantic were again good this summer, but it's also worth noting that we had good results in France as well as on sun destinations during the summer.

In a nutshell, result for Q4 are better than we anticipated in September. Our adjusted operating income is our third best ever for this quarter behind 2013 and 2010.

We recorded and adjusted operating income of $49 million compared with $55 million in 2013. Our adjusted net income is our second best trailing just 2013.

Net income was $31 million compared with $55 million in 2015 in the financial statement. Please note that $15 million of the $24 million variance is attributable to the mark-to-market on fuel hedging contracts.

Hence, our focus on the adjusted net income as a key performance indicator, you will find more information on our mark-to-market accounting policy and in our MD&A and on our Web site. In summary, it's another solid Q4 and another good summer achieved in the market where a significant amount of capacity, we are talking here about 10% has been added by Transatlantic competitors.

For the 12-month period, November to October, despite negative results in the winter, we are delivering a profit and I would add a reasonably good one. Revenues were $3.8 billion compared to the $3.6 billion in 2013.

Our adjusted operating income reached $92 million for the year or 2.4%. The adjusted net income was $45.2 million or $1.16 per share compared with $62.6 million or $1.63 per share in 2013.

So looking at the quarter a little more in detail, all market combined revenue were $845 million up 4.5% compared to 2013. The numbers of passenger were up 5% versus 2013 coming from an increased number of passengers on sun destinations and from France market.

We recorded an adjusted operating income of $72.9 million compared with $80.6 million in 2013, which again, was our best ever. The adjusted net income was $49.4 million or $1.27 per share compared with $54.8 million or $1.40 per share in 2013.

On Transatlantic route, the main market for the summer season, capacity was similar to 2013, selling prices were up by 0.3% and load factor were at 93.3% down 0.9% versus 2013, all this in an environment where capacity again was up 10% globally. On our sun destination program, sun destination represents a small market for us in the summer, when our focus is clearly on Transatlantic.

Our capacity last summer was 255,000 seats including Florida up 7%. For the quarter, pricing was up 1%, and load factor was also up 1%.

As it was the case on the Transatlantic routes, capacity on the sun destination was higher than last year globally 13% including the impact of the weaker Canadian dollar, margins were slightly better than last year. And we were profitable in that market segment.

It's worth noting that it was Transat's first complete quarter operating the new fleet of Boeing 737. In France, some very popular destinations like Tunisia and Egypt have lost their appeal.

And overall, the economic climate is such that demand is soft. Many of our competitors struggle posting loses and some announcing restructuring plans.

However, our club [indiscernible] were again very popular as we recorded an increase in the number of travelers especially in Greece. In Q4 compared with 2013, booking on long-haul destination were slightly lower, but we were well ahead on medium-haul destination which is the main market in the summer season.

For France, as oil selling prices were slightly lower and it's due to a different mix of products sold, but margin were up in that environment we are satisfied with our results in France and we have posted a profit again this year. To summarize, all markets in Q4, we did well on our main summer market segment Canada, Europe routes and also achieved better results than last year for France and sun destinations.

As for our financial possession. We have continued to improve our balance sheet; corporation free cash totaled $309 million as of the end of October compared with $266 million at the same date in 2013.

The increase is due to the past 12 months earning net of CapEx. The impact of FX on cash balance is held in our European business unit and improved condition from card processors in Europe.

It should be noted like that like every year cash level will be decreasing during November and December due to seasonality of our operation, mid-December in the lowest point of the year. That said, our working cap ratio stood at 1.12 compared to 1.10 a year before.

Deposit from customers for future travel were $424 million compared with $410 million at the same date last year. Of balance sheet agreements stood at $619 million at October 31, compared with $584 million at the end of July, the increase being attributable to leasing agreement for eight seasonal Boeing 737 aircraft and the rise of the U.S.

currency partially offset by payment made during the year. Our $50 million credit facility was recently renewed and will expire now in 2019.

Under the new terms, with the approval of the lenders, we could increase our limit to $100 million if necessary. Having a sound balance sheet available credit facilities put us in a good position to continue growing and to analyze any opportunity.

We remain on target with our cost reduction and margin improvement plan aiming to a cumulative total of $675 million for 2015. We have achieved our target of $20 million for 2014 and the objective announced last June for 2015 was set at $20 million.

A plan for 2015/2017 will be completed soon and all this will be announced next March. A few words now on our fleet initiatives.

The internalization of our medium-haul aircraft for sun destination route outbound from Canada initiated as planned in May 2014 is proceeding smoothly. In preparation for this winter, we have successfully managed to make our wide-body fleet more flexible.

In other word we will be putting less wide-body aircraft at work during winter. The sourcing of seasonal 737 aircraft has been finalized.

Thanks to the internalization of Boeing 737 and the flexibility gain on the wide-body side. We will now operate with a more flexible fleet adapted to market segment and seasonality for the coming winters.

More detail can be found in the presentation posted on our Web site, which we update quarterly. As a result, we are now in a position to have a larger proportion of our sun seater passengers on small aircraft, which would translate for us in the lower cost of operation.

For the coming year, our objective is to improve winter results and protect summer profitability. Now, the outlook for the winter.

On the sun destination market, Transat capacity is 6% lower than that marketed last year. As we proceed with the integration of Vacances Tours Mont-Royal and Transat Tours Canada, we were able to tweak and adjust capacity for each destination resulting in a slightly lower amount of seat, but we believe and pave the way for better yield.

To-date 41% of that capacity has been sold, load factors are 1.2% higher and selling prices are higher by 1.4% compared to those recorded last year at the same date. On the Transatlantic, smaller program for us in the winter, Transat capacity is 2% lower than that marketed last winter.

To-date 44% of that capacity has been sold, load factors are 2% higher and selling prices are similar. In France where winter is also the loss season compared with last quarter at the same time, booking are 5% lower and selling price are similar.

The drop is in part attributable to the fears related to Ebola and geopolitical issues at least for certain destinations. The impact of a weaker Canadian dollar net from lower fuel costs will be 1.3% increase in operating cost, if the dollar and fuel cost stay at their current level.

For more info on that please check on the page 16 of our Investor presentation where we provide detail of information for winter 2015 versus winter 2014. In summary, sun destination markets were margins are especially thin and volatile accounts for a very significant portion of Transat business in the winter.

The following factors may forecast difficult at this point. The overall supply is more than 10% superior to the previous year, a significant portion of that capacity like every years remain to be sold, booking are last minute, Canadian dollar is weakening then the fuel costs are decreasing.

So to-date margin are similar to those of the previous year at the same day. A sudden decrease in the Canadian dollar which started at the end of December of last year had a significant negative impact on the corporation results in 2014 making any comparative forecast for the winter 2015 difficult.

Then this conclude my financial review, I would like now to turn the call back over to the operator, who will open the lines for the question period. Operator?

Good morning guys, great results.

Thank you.

Thank you.

So my first question is just in regard to sun destination capacity, you are reducing capacity by 6% which varies a bit versus commentary, your commentary on the last call which was capacity flat or to add to it – should what you add to it a bit. Is that due directly to the 13% increase in overall industry capacity and although it's early days, can you comment on whether you think the market can fill the capacity, or will it put pressure on pricing similar to what happened on the Transatlantic market.

As we highlight in previous call, we have now a fleet which give us a little more flexibility than we used to have operating mostly as a 2/3rd of our program with big plane than today with that flexibility we have decided that when we are planning the winter season to relook at all our brand to identify which of the product will push with every single of those brand and in the end again by adding smaller fleet, we have in our view put a schedule on place that is the one that we think we could do better with. In the end it's 6% less seats than what we were last year.

No one should expect Transat day in winter 2015 to continue to reduce in fact our plan for that we have already decided what kind of operation we want to have the following winter and we are not planning to decrease. We are not planning to decrease.

In the other hand, having the same suite that give us a little more flexibility than in the past during the summer and up to the last minute, it will continue to give us the – if we decided to do it we would be able to adjust downward or upward like we will for this year, since it's a reduction of 6%.

Okay. So and then on that 1.4% increase in prices that you are seeing on the sun destinations market, has that been stable or is it on up or down a little bit?

Always vary but this is a trend that we have absorbed say for certain amounts of weak than comparing with the booking at the same date last year. We are ahead in term of pricing.

We are ahead in term of pricing. And it will be interesting to see and that's why we – it was difficult for us to forecast where we will end the winter because if you all remember after Christmas last year with the falling Canadian dollar margin were really, really affected and like for everyone.

And with the capacity that everyone deploy at the time combine with this than results – was tough on results. This year same date, we are slightly ahead and from now on, we will compare margin that will generate on new booking versus the one that we had last year that were kind of depressed than combining this with the fact that there are more capacity on the market, we thought that it was a better for us to give a very clear picture of our – on where we are today instead of trying to forecast where – and the winter.

I think with the information we provide with you have same details and information that we have as of this morning.

Okay. Thank you.

And then I just wonder, if you could speak about your hedging strategy, I know that you previously said it attracts booking, is it still the case and how should we look at this going forward? Is it a static strategy that's consistent or is it a change?

The strategy remains exactly the same. We have started our hedging program a year in advance we are doing that progressively.

We want to begin the season by having say 40% of our cost fixed all this is to reduce volatility and after that we are continuing up to the date of departure. When on departure date we want margin to be known for every single package that we have sold then and this is consistent with previous year and we are doing that for currency and kind of the same pace and speed that we are doing that for fuel.

Then we are trying again here not to speculate.

Okay. And just lastly, before I step back in the queue.

What was the lowest cash position that you had which I believe would have come post October 31?

It would surely be mid-December to be more precise exactly.

Okay.

A week before Christmas, this is where the program would start. And the moment in the year, where our cash position, free cash at its lowest point is the moment where our interest account are the highest point.

Because we – at that time we will have collected money from link to the booking of the consumer and the program will just start the week after that. Again, the picture is very different mid-December than it is when the program started because we start to take the money for the interest for every single passenger that will have flight and move that to the free cash.

At the same time, we have the support of our suppliers and these people are giving to Transat credit condition that allow us to pay to pay after at that specific time end of the December, lots of cash is coming from the interest to the free cash. And, we don't have to pay a lot to suppliers because we have credit terms, it goes very, very fast as we bring the cash to announce that you are used to see when we are posting results every quarter.

So on that what would that cash position be in a week, or what is the cash right now that would kind of be a good indicator what that low point is?

We said last year that we were slightly over $150 million during that period a year ago. And we have this year generated, if you look at the cash flow or if you look at the cash position at the end of the year between $40 million and $50 million have been generated in the last 12 months.

Then we should expect our cash position to be $50 million, it was a year ago than 200, 200 and something.

Okay. Perfect.

Thank you.

Okay.

Yes. Good morning gentlemen and congrats for the good results.

Just to come back on the previous question, could you – maybe provide more color on where you removed some capacity this winter?

Where we removed the capacity, okay? Give me two minutes.

We will tell you exactly where. Where we moved the capacity of TMR because [indiscernible] as you know the [indiscernible] now, it's just in Cuba.

And before it was selling all the destination especially Dominican Republic and Mexico, so this is not this year. We are not doing that this year.

And we will move capacity where we had routes that they were not as good as it were before. So but this and there nothing really special at the end of the day.

Okay. And shall I ask is it a fair statement to say that you basically removed the capacity more and kind of the low end segment?

Yes. We could say that.

Yes. Yes.

Okay. Okay.

Perfect. And just in the press release when you talk about – sorry here, when you talk about the outlook, is it the outlook for the next quarter or basically for Q1 and Q2 for the winter season when you talk about the sun destination Transatlantic market and France?

It's for the entire winter. The first six months.

Okay, okay. Very good.

And when you say that you expect to improve profitability in the upcoming winter season, the winter performance last year Q1 was pretty stable and comparable to the previous year ago. We now know that your fleet will be a more efficient.

So could you talk a little bit about the magnitude of the improvement you would expect this upcoming winter?

If I may, I will put that this way. We are not forecasting at the end of the winter that result will be – and we are not saying this morning that result will be better.

We say that this is where we are versus last year, but our objective to improve profitability in the winter, which is quite different. We thought that would be better to give you full detail of where we are versus last year at the same day.

But, as you know margin are very thin, anything could happen. And instead of forecasting and looking in the crystal ball and say that we think that at the end of the winter result would be so much let's say provide you with all the detail, our objective is to improve results in the winter and we need to improve winter results this year and in the coming years.

And what we want to is maintain the profitability of the summer. So if you look at the results that we have been able to deliver in the last five summer, the average is 100 million then we want to push – we want to maintain that in the future and we are quite happy this summer because we have been able to deliver that in the market where capacity increase was 10% then we are pretty happy with the results of the summer.

And maintaining the summer, improving the winter, this is our objective. This is what we – this is the objective of the plan – will be presented in March.

But, we are not saying this morning, we are not forecasting this morning the results of the winter.

Okay, okay. Perfect.

And I understand that for the next summer, for the Transatlantic market, it's still very early, but last year at the same date in your outlook you mentioned two lines about your – the seats that have been sold and also the capacity was 2% higher. So I understand it's pretty early but what is your assessment or what are your expectations for the upcoming summer season so far?

The capacity added [indiscernible] are about 9% to 10%. We have the same capacity than last year.

Well, booking right now 9%. We are in advance by 1% from last year.

But, 9% booking [came] [ph] down what will be the summer. So anyways, it's not better or worse than last year, we will remain about the same.

And as you know, we took out some routes that we were not making the money that we are thinking especially Germany – from Germany to the western of Canada. And also as you know the Turkey, Istanbul, we took out completely the program.

That doesn't mean that we don't do any more. Germany as a tour operator or Turkey as a tour operator because we still have groups.

We still have the coach doors to those destinations. But, as online, we decided to cut the capacity.

We start as you know, Turkey were the first one on that market four years ago. And it did well.

And as you know we are in the leisure market, so we send a lot of customers there. Now we are facing especially Turkey Airline, where Istanbul is a hub for them.

So we are not in that market, so we decide, okay, we will continue as a tour operator not as the airline. But for the rest we are developing more and more some routes where we are today and as you know we open a new destination this year Budapest.

And we open new destination from – not new destination but from Canada, St. John and Halifax, we are doing to London.

So it will be new routes for Transat.

Okay, okay. Very good.

And just in terms of market share obviously, you are focused on profitability improvement led you to lower capacity and basically that translates into a market share loss. But is there any minimum level you need to maintain to kind of benefit from economies of scale.

What should we expect, you mentioned some color about the upcoming summer season this winter. But, after that any thoughts on the market share focus?

Sure, sure. As Denis said, few moments ago on especially on the Caribbean or submarket, if you want Caribbean Mexico, it's going to be the same thing on Europe.

We will not downsize now any more the capacity of Transat especially because now we have really the fleet that we need and the flexibility that we need. In the winter now we have six aircraft on the ground, 3 are Airbus 330, 3 Airbus 310 plus we have one Airbus 330 within France.

And those planes have been replaced that's why you see a little bit less capacity but it's just few thousand seats, we are not talking about big difference. If those planes are replaced by 737 or 800 or 700 we will benefit for the winter, because it give us more flexibility.

And in the summer, we have the 12 Airbus 330, 9 Airbus 310, plus as you can see now we are using some time 737 to do St. John, London.

So now, we have the perfect fleet to begin with. So now we are not going to downsize any more and we are going to grow the capacity.

And we will tell in March, when it would be the result of the first quarter and also the annual meeting of Transat to the shareholder. What are the plan for Transat for 2015, 2017 and you will see there is a growth in that plan.

There is no more decrease in capacity or in the markets.

Okay. That's very good color [indiscernible].

And just in terms of further cost reduction initiatives, we have been reading that you will be implementing some self-checking systems in the coming year. So I'm just curious, what we should expect from a CapEx standpoint in the next year or two?

And what kind of cost reduction initiatives it could bring?

For sure, we are going to have more cost reduction. We said in 2012 when I came back in the company and did a turnaround that the cost reduction will be $55 million between 2012 to 2014.

And then another $20 million in 2015. So as to-date, the cost reduction that we said we have done from 2012 to 2014, we are seeing that cost reduction for 2000 will be at minimum $20 million and we are going to set again in March, how much reduction shareholders, investors can expect from Transat from 2015 to 2017, but to give you a color, I can say to you that there will be a lot more cost reduction coming in that – those three years.

But, again, too early wait till March if you can and we will happy to tell you exactly how much you can expect.

Okay. And last question if I may, is it fair to assume that you will be discussing some cash deployment opportunities in March, when you will be releasing your plan?

For sure. We have new story.

We all know it. We thought that we will be able to say that today but we are working on a lot of things and we will prepare and tell you in March but for sure cash would be part of the answer for that too, for sure.

Okay. Thanks for the time.

Thank you.

Yes. Good morning.

My first question is, as I'm trying to understand the table provided in your package which is very helpful, but on page 18 which shows that you are going to have a $16 million headwind based on what you see right now for the net of foreign exchange and fuel. So I guess the question I have is – are you trying to say with your guidance that based on what you see right now that the blank line yield management et cetera, et cetera, will completely offset the $16 million?

In fact, this calculation of $16 million on page 18 is coming from the assumption that you have seen on page 16 where we described price of fuel for us today in Canadian dollar versus last year. And also as you know, good portion of what we are seeing is also, the costs are also in U.S.

When we put all that together the impact on our cost is $16 more for the same package than last year than 16. Dollar more per passenger times a million because we have passenger on southern destination and a few also on Transatlantic than a million by $16 million.

We have segregated that into Q1 and Q2. And remember that Canadian dollar was – start it descent, it's not around Christmas time then the impact of the $16 million would be more – we will feel that more in Q1 than in Q2.

Then, this is kind of the base line say the activity of last year adjusted for the new cost of – the new value of the Canadian dollar versus U.S. And then also the cost of fuel.

Now, what we call the yield management line and the others for cost initiative. As of today, what we have sold we said that pricing is up 1.2% to 1.3%.

And 1.2% to 1.3% correspond to the additional cost coming from the combined effect of FX and costs. That's why we are saying here that if things remain the same and we are not saying that they will remain the same.

But, result will be similar than last year. Then it would be interesting to see from now on how the margin – what would be the margin that we will generate on all the bookings that remained to be sold versus last year and we remember that margin were kind of depressed last year for the period for us by adding the Canadian dollar going down.

Then this is really what we have tried to put on page 18 for everyone to make their own calls on that. Knowing that there is more capacity, knowing that the fuels continued down, knowing that the Canadian dollars we hear kind of everyday than…

And knowing that we have better sold than last year at the same time even the capacity increased by 10%. So that's why it's so difficult to tell you exactly where we will add at the end of the winter.

And knowing especially that part of the sales are done for the first quarter, but a lot of sales are to be done in the second quarter. And what is very difficult to do as you say that a projection, it's – last year when we had the result in mid-December at the same time last year, we were feeling very good because prices were a little bit higher even if the Canadian dollar was lowering a little bit.

So everything was okay, so we were quite happy. But as you know, at the end of December, the dollar start to go down like crazy and that's why we end up making this last year.

So not knowing what could happen to the dollar for the next three or four months and the fuel, and this capacity we added, it's impossible for us to tell you the result will be this or that so we prefer to give you all the information, you have the complete picture and after that you can do your calculation and your projections.

Right, okay, that's helpful. So just one other question on that, so the table is basically showing what would have happened with last year's capacity is in, that the capacity is going to be 6% lower.

So these numbers would be 6% lower were they not really for the total?

The impact of capacity is not being on bottom line since the margin are so thin that and have been able to reduce the number, reduce the fixed cost, we – this will leave on ground few of our A30 and there will be no cost aided to that than combining low margin in this and the impact will not be significant by the 6% reduction.

Okay. Because I did some calculations, I think that your revenue is going to be $50 million lower by this, if you just reduce capacity by 6%, you're obviously getting better pricing than your – with that much less capacity and you're getting better load factor, but the net – the load capacity impact is much bigger than the other two, is that not correct, revenue at the same time?

I think by reducing capacity obviously, you reduce revenue. But the costs will reduce kind of at the same – at the same speed and same amount because again much of what we are selling are variable.

I mean the hotel, utilization of plane, the fixed cost associated with planes and the margin base and again, so then I don't think we should forecast it. I think or we should calculate or come to a conclusion that reduction of 6% of capacity will have a – net impact on the margin.

We will deploy this year in that 6% reduction defuse that in 37-700 versus 800, we're talking here about like 40 seat less. But it's an aircraft that will be better adopt to the market that we will serve, then again little less seat, but we decided to do that because we think that the margin for every single of those passenger that will travel in 737-700, we think that the margin – I assume that the margin would be better than – we have not clearly, we have not calculated any negative impact by the cycle, we have reason that we have reduced capacity by 6%.

Okay, that's helpful. Thank you.

And then on pricing for the market as a whole in the sun destination, are you seeing your pricing doing the same thing as to the market as a whole, I don't know how you would deviate from it. But, it's seems hard to believe the prices would be up with fuel prices falling so much and I know that he currency is an offset to some degree, but it's hard to believe that you wouldn't see the pricing start to weaken and especially with such a large amounts of capacity in the market.

Are you not seeing any kind of weakening in pricing in the market?

Not now.

Not now.

And for every single of our competitors who have decided to put in place a hedging program where they cover the cost of fuel and the cost of the currency or for any other one that have decided to remain say not to buy any of those derivative products and the U.S. dollar impact on cost of packages themselves is quite significant.

It's quite significant then it goes to 115 this morning. Then the global impact what you call it, effect of these two – even if the consumer are – we are all seeing reading the newspaper and the price of fuel is going down, and down and down, but in the end combining the two, the impact is not so big up till now.

Next summer we could if the rates are – the FX and the fuel remaining where they are we should expect, we should all expect to have a positive or a reduction effect on our cost, all this will translate into revenue, at the end it's a market that is very efficient and if cost is going down normally your revenue is going down also but for winter, we'll see, we'll see.

Okay. And my last question sort of related to your two big public competitors, Air Canada and WestJet don't hedge on fuel.

I was just wondering what your thoughts were on that because presumably they're now getting an advantage because they don't hedge which they could turn into lower pricing, do you have any thoughts on that and whether you would just consider following their strategy on the fuel side?

Actually when we are competing on southern destination, we are trying to assess the entire market. I mean not only these two guys, but also Sunwing that is selling packages.

And these guys are selling things that are closer to what we are doing. When we are doing the Transatlantic, or even in France, we are also doing the same by assessing what the competition is doing.

As far as southern destination, we think the way we are doing the things by reducing the volatility sometime it could affect the results like when there is a drop, or could be a positive disadvantage where when there is a drop, one that we've seen this year, we'll see at the end. But last year, when the dollar starts to fall, we were quite happy to have protected the cost even if the impact we were not able to improve result winter over winter, but and the impact on us last winter even if we have their hedging program, the impact on cost was inclusive of $30 million that was $36 million than we think that over time reducing the volatility and fixing the cost when we are selling and securing the margin is the way to go.

This is our view. It's tough to play the market and to speculate and to decide, again, sometimes you make a home run, but in other situation, it could really be a disaster, it could be a disaster.

And we have seen many heroes that become zeroes the following years. We don't want to speculate on that.

Okay, very good. Thank you.

Hi, its Umayr for Cam. Most of my questions have been answered.

I just wanted to clarify one thing, on page 16 of your presentation, you have 2015 average for FX blended rate, I just want to make sure, is that a hedge price or is it just next forecast for the year?

This is for the winter period, the combination of spot as of few days ago and our hedge position that is a blended rate.

Right. That's it from me.

Thank you.

Okay.

Hi. Thanks for taking my question.

On the fuel price, it seems like, we have made out to whether your or so to see the full benefits, or for you to see the full benefits of that given your hedging strategy. But given it's a bit of a stimulus to the consumer, are you seeing any impact on your booking curve, or you're seeing people upgauging more in terms of better mix of product for you.

I know you talked about pushing accelerated revenue or you're seeing more uptick there just given the decline in fuel price and then more dollar in the pockets of your passengers?

Yes. As you know we are trying to sell the first the product of a higher end like sanction collection for [indiscernible] by far.

So first the pack that we're selling are at the high-end, number one. Number two, we are working a lot on the ancillary revenues for sure and as you know this year we are not the meal now, the people have to pay to go in the Caribbean, the meal like most of our competitors.

And this is not just to make money, but also to cut the cost. So we are doing a lot of things like that.

We brought now equal fare. Now, we have three different type of fare for the economy fare of Transat.

So this again will bring more revenue. We did something on the cargo side of Transat, we used to take ourselves – to do ourselves a cargo, now we will transfer that to a specialist.

And this again will bring the cost down and maximize the revenues. So we are doing a lot of things at the end of the day and all those things will be presented in March one-by-one to be clear and to be sure that everybody knows about it.

So yes we are doing that. And yes it will bring cost down, more revenue at the end of the day for Transat.

Thanks for the clarification. And just on your fuel price, just back on that Slide 16, it looks like you're expecting your blended fuel price to be down in Canadian dollar terms roughly less than 9% call it, that definitely significantly less than the actual move in fuel price on a Canadian dollar basis.

Can you just explain to me, how your hedging strategy is working given that you've only sold about 41% of your capacity to-date. I would have thought your – just given that there are so much unsold capacity that you have much more of a benefit on the decline of the fuel price this winter.

Just trying to get a sense of how that's all triangulating to kind of a roughly 9% decline in your forecast?

Yes. Again, we are starting a year in advance.

And we are fixing the cost a few point of percentage every month. We want to start the season by having roughly 40% of our cost fixed again to reduce volatility.

After that, we're continuing that systematically and progressively. And we want at the departure of the plane to be at the same level than load factors that we've been in around 90%, this is our objective, which mean that from November 1st to departure date, roughly we have kind of 20% more hedging that we have booking as you know bookings are coming very late, we have roughly 20% are coming in the last 30 days and at that time, we don't do hedging for the departure of tomorrow then that's why we are maintaining kind of a plus 20% order booking to get to departure date and we were where we want to be.

It's the philosophy I mean that we are in that every single day, but this is the philosophy.

Okay. I know they are top fold.

And just on your comments in terms of how you see capacity evolving over the next coming years, taking it down 6% this winter, but it sounds like your comments are towards growing capacity pass that. When you think of it philosophically, how do you think of your position as a swing producer in this market obviously, both WestJet and Air Canada have also been very public in their strategy about growing capacity.

When you look at past this winter, do you feel that your responsibility to maybe be at swing producer, so you could be taking down capacity even if you don't particularly wants you to maintain yield or do you think it all just the kind of a wild-wild west, when you kind of look out 2016 in other words just growing capacity at double-digit rates?

Okay. First you have to be careful with the capacity because very often when they are adding capacity they are adding capacity when we are not there or very little to give you the example Orlando, Miami, Fort Lauderdale, Las Vegas, we're not in Hawaii, we're not in those destination, number one.

Number two, they are selling a lot of air-only, we are selling more packages. Number three, we don't see them really a too much competitor.

We see somebody else as a real competitor of Transat because we're selling the same type of product to the same type of customers. And for us what is important at the end of the day is to get the hotel in the right destination at the right price for the right customer.

So they can add and add and add capacity at the end of the day. There is so many people that can go in that destination on-air only and they need the hotels.

If they don't have the hotels at the end of the day, they will start to add capacity, you cannot, it's not like Fort Lauderdale or where most of the people go there, they go – they have their condo, they have their own hotels, they have been there for years, they have friends, families, they go there left and right, it's not the same thing when you go to Cuba where they go over to Santa Clara or in Cuba or to even Riviera Maya in Mexico, your need or Punta Cana, your need to have the hotels. There is so many people that can go there only.

And at the end of the day, it's really for us a game of who has got the best hotel at the best price for the right customer. So really what it is important and for us that's the game and that just – not just the game of capacity.

And I can tell you that today in Punta Cana, for this winter, the hoteliers are already asking us I suppose everybody give me your room back my friend because I have customers coming from other countries that want to have those rooms. So I can tell you that today there will be for February, March, the shortage of room in Punta Cana.

So good luck for adding capacity and capacity and capacity into Punta Cana. I suppose that people will sleep on the beach or in the field.

So at the end of the day, we have to be careful about saying anything not knowing the market. So at the end of the day, I can tell you Punta Cana this winter will be something important to get the room, I can tell you that today.

It sounds like that's part of your destination.

Yes, yes and we are the number one in that destination. And we are the one adding most of the hotel and most of the best hotel, but we have another competitor who has good hotels too.

And depending on the price that you pay for the rooms also it's a game of that also.

Right. That's a good color there.

And just lastly for me just a point of clarification, when you do release your – I guess your updated strategy for 2015 to 2017 in March, it sounds like we'll get some updates on cost cutting, but will you also be providing strategic updates in terms of how you're looking to shift your products and maybe some of your outsource specifically for example it looks like your summer sun destination strategy, it looks like is working quite well, looks like there is some opportunities there. Will we get an update on initiatives like that in a couple of months?

Yes. You bet.

Yes. You're going to have that on what we'll do with the cash, what will be the – we'll do to cut the cost?

What we will do to develop Transat. What we will do with the product.

What with – in everything you're going to have an answer, we are going to everything, we're looking at it and it will be a clear, clear plan and after that like we are doing from 2012 to 2014, the last plan we'll follow that and we'll tell you exactly where do we stand quarter-after-quarter, yes it will be part of the conference call.

Perfect. That's it from me.

Thank you.

Thank you.

Yes. Just Jean-Marc, if I'm interpreting your comments correctly, it sounds like what you're saying is that 13% increase in seats to the south doesn't really represent what's going on in your markets, but it's not nearly that much increase.

Is that correct?

Yes. Part of that increase, we don't go there.

They add capacity on Florida, we don't go there. They add capacity on Vegas, we don't go there.

They add capacity on the lot of English Island, we don't go there. We don't go to Barbados.

We don't go to St. Lucia.

We don't go to Aruba. So a lot of things like that we really don't care at the end of the day.

But for sure, they are adding capacity on those routes for sure, but at the end of the day, it's not where Transat goes.

So in your markets, what's the situation?

I just tell that Cuba is doing very well, Punta Cana is doing very well, problem will be a room in this winter and that's what I'm saying to you. Jamaica, I will say so and so.

Mexico, Cancun little bit tough, Puerto Plata very good. So depending of the destination.

Right. So it's a lot better than you slide suggests than it sounds like.

We see it that we are better sold than last year. So at the end of the day, but what will be the cost of the fuel in three months from now, what would be the dollar in three months from now, what will be the situation in Punta Cana in three months from now, this I cannot tell you.

Sure, now that's fair. That's fair.

And then the other question I had was Air Canada is obviously growing routes very rapidly and seems to have extremely large growth ambitions for next year presumably on the Atlantic more than anywhere. Do you see this being challenge for you from a pricing and market share standpoint or just a demand standpoint for next summer?

As we said, we have the same capacity or almost than last year, okay, next summer.

Yes.

We have sold a little bit more, but 10% been up than last year. Prices, similar.

On the other side, what I can tell you is, this year everybody expect that we were going down because of Air Canada routes. What happened?

Is that second best quarter that we never had? For the last five years, if you look at the result of Transat in EBITDA, one, put that on five years, you will have almost $100 million every year almost.

So we'll see next summer that's the only thing I can say to you. I'm not a designer; I know in English, does I, someone that can predict it for you.

Yes, I understand.

That's the only thing. But what do I know it's the rule that we get are the good ones, we're strong, we got the product, we got the customer both sides of the Atlantic.

We know that by heart less than center and we'll see, we'll see.

Okay, very good. Thank you.

Hi, I'm just wondering if you could tell me what the jet fuel price was for Q4?

Could we follow up on that – because we just not bring that with us and we'll put that in Canadian dollars just to be consistent?

Okay, perfect. I'll call you later.

Thank you.

Very good. So in closing, I would like to mention that the conference call for the results of Q1 2015 and the strategic plan will be on March 12, the very day of the shareholders meeting March 12, 2015.

So thank you everyone for participating in this call. And have a good day.