Transat A.T. Inc.

Christophe Hennebelle - Vice-president, Human Resources and Corporate Affairs Denis Pétrin - Vice-President, Finance and Administration and Chief Financial Officer Jean-Marc Eustache - Chairman, President and Chief Executive Officer

Mona Nazir - Laurentian Bank Securities Charles Perron - Desjardins Securities Aslam Omar - National Bank Financial David Tyerman - Cormark Securities

Hello, everyone, and welcome to the Transat conference call for the presentation of the financial results of the fourth quarter and fiscal year ended October 31, 2016. I’m here with Jean-Marc Eustache, President and CEO; and Denis Pétrin, our CFO.

Denis will review the financial results and we will then answer your questions from financial analysts. Questions from journalists will be handled offline.

The conference call will be in English, but 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 may refer to it as he 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.

Forward-looking statements represent Transat’s expectations as at December 15, 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.

Thank you, Christophe. Good morning, everyone.

We reported today our numbers for the fourth quarter and for the entire year 2016, which ended on October 31. As you know, our results for the second-half of the year primarily driven by the transatlantic market.

Last September, commenting on our Q4 outlook and as a result of significant increase in capacity, we said that if trends were to remain the same, we were expecting to deliver inferior results when compared to those of 2015. Indeed results for Q4 were satisfactory per se, but inferior to those of 2015, which were the best-ever recorded in Transat history.

Our fourth quarter also ended with the completion of the sale of our French and Greek tour operators, which will be addressed later. As a reminder because of the sale of our French and Greek entities, we are reporting our French and Greek operations as discontinued operations.

Accordingly, the following information refers to continuing operations unless I mentioned otherwise. For the fourth quarter, as we highlighted in our previous calls, there’s – there was a significant increase in the number of seats on the transatlantic market this summer, 14% increase that lead to lower load factors and lower selling prices, then revenues stood at $612 million, down 3.5%.

The number of passenger was higher at 3.4%. Selling prices were 8.9% lower.

As a result, we recorded an adjusted operating income of $46 million for the quarter compared with $71 million in 2015. The adjusted net income was $24 million, or $0.66 per share compared with $45 million, or $1.18 per share in 2015.

The net income attributable to shareholders as per financial statements was $35 million compared with $69 million in 2015. Our net income take into account the $5.9 million restructuring charge regarding lump-sum payment related to collective agreement with cabin crews and expenses related to the cloak – and expenses related to the closure of certain call centers.

It also includes depreciation of goodwill of $64 million. Given the changes in the environment in which we operate, we review our assumptions, our future cash flows, and perform a new impairment test.

Following this new task, we recorded a depreciation of the remaining goodwill. Finally, our net income includes the gain on disposal of our French and Greek activities that led to a gain of $49.7 million.

On transatlantic routes, our main market during summer, we added 7.4% more capacity than last year. Selling prices were down 8.9%.

Our load factor was down 3.4% at 88.2%. A lower fuel price reduced our cost per passenger by 4.6%.

In the end, margins were down 8.6% compared to the fourth quarter of last year. On our Sun destination program, low season during the summer months.

Our capacity was up 5%. Selling prices on our packages were 3.7% higher.

Our load factor was 93.3%, 2.6% lower than last year. The impact of the U.S.

dollar net of fuel increased our costs by 3.1% on packages. Taking into account the impact of a weaker Canadian dollar, margins were down 5.1% versus last year.

Hotel Oceans, which is 35% owned by Transat. Summer is the low season for Ocean activities.

Our share of the net loss amounted to $4.3 million, compared to a share of net income of $1.2 million positive in 2015. The exchange rate difference following conversion of financial statements to dollar and a positive adjustment in income taxes in 2015 fueled the variance year-over-year.

The book value of our investment stood at $98 million at the end of October. Looking at the entire summer, we recorded an adjusted operating income of $62 million compared with $116 in 2015.

Our adjusted net income was $27 million compared to $72 million in 2015. We recorded a net income of $44 million compared with $82 million in 2015.

The 2016 net income takes into account depreciation of goodwill and the gain on disposal, resulting from the sale of our French and Greek subsidiaries. For the year, revenues were $2.9 billion similar to those of 2015.

Our adjusted operating income reached $26 million for the year, compared with $101 million last year. We recorded an adjusted net loss of $16 million compared with an adjusted net income of $46 million in 2015.

Now, our winter outlook. On the Sun destination market, main markets for us in the winter, Transat’s capacity is 3% lower than last year.

50% of that capacity has been sold. Reservation are ahead by 2.2%, load factors are up 3.3% versus last year.

The impact of the weaker Canadian dollar combined with the increase in fuel costs will be a 3% increase in operating costs, if the dollar and the fuel cost stay at their current level. Margins are currently 1.5% lower than last year.

For the transatlantic market, Transat’s capacity is up 8%. 49% of that capacity has been sold.

Reservation are ahead by 10%. Load factor are superior by 0.8% versus last year.

Fair are lower by 4.4%. The fuel – the impact of fuel net of currency represents an unfavorable variance of 2.7%.

Margins are now 7.8% lower. Again, the transatlantic market is a low period of activities in the winter months.

These indicators may lead to think the winters result will be worse than last year. However, one should remember that the winter of 2016 has been affected by several important events worried about the Zika virus, threat strike action by pilots, and terrorist attacks in Europe, which all caused the situation to deteriorate as of the beginning of December.

In comparison, this year results may therefore will show improvements over last year once the season is over. If you were now on the sale of Transat France and Tourgreece, on October 21, 2016, the European antitrust authorities approved the transaction for the sale of our France and Greece-based tour operating business units to TUI AG.

We closed the sale on October 31, 2016 for €63.4 million, that represents C$93.3 million, all in cash. This results from the addition of the initially announced sale price of €54.5 million and the adjustment determined during the closure of our accounts as of October 31.

It is to be noted that the buyer has 90 business days following the sale closing date to accept the price in order for it to become final. The sale, therefore, resulted in a gain on disposal of $49.7 million and a $68 million increase in the amount of our cash as of October 31, 2016, which corresponds to the sale price less Transat France’s cash as of the end of October and attract transaction fees paid on that date.

The disposal of Transat France and Tourgreece has no impact on either Transat’s transatlantic program or the Air Transat operations. On this, more information could be found on page 27 of our investor presentation available, like said at the beginning on our website.

Now, for the balance sheet. The corporation’s free cash totaled $364 million as of October 31, 2016 versus $336 million a year ago, an increase of $28 million.

Our credit facilities remain unused. In addition, deposit from customers or future travel for continuing operations were $409 million at the end of this year.

The decrease versus last year is the result of our French operations and of the restructuring of our crews operations. Off-balance-sheet agreements stood at $710 million at the end of this year.

At the moment, we estimate that we have around $300 million in free cash, so the one that I’m always refereeing the $150 million that we consider that we need to keep and the $100 million – the $150 million available to pursue our strategic plan. As part of our strategic plan for 2017, we will continue to reduce costs and improve margins to get to $100 million over the three years compared to 2014.

We have achieved $75 million over 2015 and 2016 and plan to deliver the remaining $25 million in 2017. Increasing competitiveness of our distribution noted – notably by reinforcing our products offering in network continuing to increase our controlled sales, and client [ph] intimacy and optimizing our revenue management is the – is also very important for the coming years.

Third one will be continuing to improve Air Transat operational efficiencies and plan for the optimization and the renewal of our fleet. Finally, work on our plans to control hotels in the south.

In the next coming months to a discussion with H10, our partner in the Ocean Hotel, we will come to a decision whether we will be able to achieve that target more efficiently by acquiring 100% of Ocean, or by selling our interest to H10 and use the proceeds for other investments. In summary, the condition in Q4 has been similar to those in Q3, and not very different from what we expected.

For the whole summer, we have delivered compared with satisfying result in a very demanding competitive market, where the increases capacity – in capacity has been huge. This, however, followed a winter that has been particularly difficult making the summer results insufficient to upset the winter ones.

Our priority as we enter into 2017 is to continue working on the improvement of our winter season, which is the key to achieving overall profitability. Beside our continuous operational improvement in cost and distribution in revenue management, we will take a closer look at our position within Ocean and determine what is the best approach to this investment with a view – a clear view to achieve find – our final goal of controlling our hotels in the South.

Let’s now proceed with your questions.

Good morning and thank you for taking my questions.

Good morning.

So firstly, just wanted to touch on the summer profitability decline that you just spoke about, which was a result of the divestiture of France and Greece and also challenging market conditions. I know, you’re adjusting increased color on winter 2017, but do you think that you could move back to a situation, where you’re EPS positive on an annual basis with the current business model?

Yes. I think, Mona, with all the improvements that we and all the initiatives that we have started to implement at sometime ago, we think our results for the summer period should more than compensate the loss that we could end up by having in the winter.

And even we had even in the winter months, we’re pushing very, very hard and the initiative to control there is really in that direction in order to improve the winter results and all of the periods, where we deliver negative results in the winter month. Then management here is positive about the future to not only be positive, but really, really improve the winter season.

And we all know that that winter season absolutely need to be improved and that’s why it’s our main focus.

Okay. And you’ve stated on the last call that you’re looking to shift the business model by acquiring U.S.

tour operator, or hotel your down South, multiples in these sectors are north of 10 times EBITDA and depletion of your current cash position would not make up for the EBITDA loss with a sale of France/Greece combined with the challenging conditions that we saw this year. I’m just wondering if you could please speak about the opportunity of – the pipeline opportunity at this point in time and at multiples that you’re seeing are impede in that 10 times range.

I believe that you were in discussions with some potential targets at the time of the call. I’m wondering if those discussions are still ongoing, or put on hold, given the new optionality with H10?

The first comment that I will make is for the sale of our French and Greek operations. Looking at the numbers of the reason here, the result on a yearly basis at the EBITDA level and net-net, we’re close to zero.

Then when we segregate summer and winter that was deteriorating our result in the winter months and improving our results in the summer months. But all in all, that was kind of a close to zero impact on our results.

Then that should not be a factor for the coming years on an annual basis. On a seasonal basis, I understand, but not on an annual basis.

Controlling the product of destination is very, very important. If you want to know not only generate the margin that has generated by hotel, but controlling the experience.

And that’s why the experience have declined and that’s why we’re pushing very hard to complete that. In the press release in the communication this morning, we said that, we are looking at two options that were described again, are to acquire the remaining portion of Ocean Hotel, or to sell that participation and use the proceeds for hotel investment.

I must say that, acquiring a tour operator in the U.S. is really for us second face.

Obviously, there’s a huge opportunity, we’ll consider that, but hotel is our priority. Then we’re not in a position to say more than that, because it’s not fine [ph] completed.

But in our view by March, we should be positioned to give you lot more colors on the decision on hotel and particularly in Ocean Hotel.

Okay. That’s helpful.

And just lastly, for me, I’m just wondering if you could comment on the change to the foreign ownership top in Canada that increased to 49%. A peer company of yours came out and said that, they thought as a negative for their business.

But given your destination travel transatlantic south, is it correct to assume that there should be no significant impact to financial results? And just secondly, wondering if you could speak to, if you would be open to a partnership with foreign owner and perhaps that could be a means to accept additional capital?

I think to your first question, we anticipate no impact from having those new guy on the market. Let’s remember that we are in the winter period and they’re looking for a plan that to have short range, I mean, not the transatlantic market.

We’re setting lots of packages and the tour operators essential into that strategy that we do not anticipate any impact because of that, we don’t anticipate any impact. We would be open to consider an investment for foreign people.

As you know, we’re a public company. Then if we were to swap shareholders then they’ll have no impact.

But I mean, if we require capital, obviously, all sorts of capital will be considered, obviously.

Okay. Thank you so much.

Good morning, gentlemen. This is Charles Perron filling in for Benoit.

Thanks very much for taking my questions and congratulations on a good quarter and the current context. My first question is looking back at the winter outlook that you provided, I know it’s hard for you to quantify how much you could improve year-over-year in 2017.

But I was just wondering, if you could provide more color and the extent of the improvement expected this year, should we be expecting more winter like in fiscal 2015, or in fiscal 2014, or you’re confident that you could even reach break-even at some point this winter?

You know, Charles, that’s exactly the reason why we try to provide lots of detail on when we are doing this outlook section by showing and by sharing where we are versus last year at the same time. Is there enough to say, like last year, what kind of things we could have in front of us then it’s not an exercise that we want to share to say, where we will end?

We’re not doing that. But we’re giving you lots of information in order to make up your mind on where result could end up at the end of the season.

And we also include in our press release for everyone to consider that last year starting in December, we had this terrible terrorist attack in France that impacted our transatlantic program. And just after that, we have the Zika trip that had a huge impact also this time on the Sun destination program.

And finally, on top of that, it’s threat of a strike, where a lot of the customers that we could end up by having last year decided to go elsewhere and because of the uncertainty associated with all the days, which we know are so important. When you book with your family, you want to be sure, because the holidays of everyone, our plan at the same time we wanted to be sure to have these holidays.

And that’s why in front of us, when we compare numbers with last year, our view is, because of these events, results of this year, for the future bookings, we’ll compare them with a very depressed situation the one of last year. More than that, Charles, it’s tough to give you more color on winter and summer in Q2.

I think you have all the details that you – that we have you answered.

Okay, okay, thank you very much. And also about your Ocean Hotel JV, you mentioned in your release that the weaker year-over-year results in Q4 were driven by FX headwind in the quarter despite improved operation.

Can you just explain how you believe increasing exposure to this segment will help you mitigating the risk associated with your tour-operating activities, especially in terms of the impact from FX movements? And also how you expect this business profitability to evolve over time as you have it right now?

If we were to look at the numbers of an hotel that we know an Ocean Hotel on which we have 35%, is a business that generated last year roughly $37 million U.S. of EBITDA and close to US$20 million on a net-net basis.

We are taking our 35% share on then and we’ve put that in our P&L, because it’s a minority interest. We recorded our fair share on the EBITDA line, but the numbers that we are putting there are net, net, net of – it’s not the EBITDA, it’s the net results of the last line of their P&L.

When we look at the results of hotels, they are very profitable in the winter months and the low season during the summer months. Then I – and like I was saying at the beginning, hotel is not only part of our strategy, because it generates good returns and that’s justify high multiple.

But because it’s essential in our industry to control the experience and to handle by having exclusivity. And this is the reason why people when combining the service on the Air Transat and the hotel that they could get when the book with us.

This is how we should end up by attracting the people and making them decide to buy our products versus the products of the competition. If we were to sell obviously the same product then everyone people will only look at the price and the differentiation as key factors.

Okay. And we have also seen as sizable transaction in the U.S.

tour-operating business very recently. And I was just wondering if you look at this opportunity in the past, I’m looking about Apple Leisure.

And what made you pass on this if you have looked at the transaction?

Yes, obviously, we have a look at the – this Apple Leisure Group. Final, the price that were paid to acquire that business was not communicated this week.

But we know what they were looking for. They were looking for something like US$1.5 billion.

And yes, we have looked at this. There was a – and the reason for that is – the reason why we looked closely at this company is, because we were having at the same time the management of many hotels down South combined with the strength to sell those rooms on the U.S.

market by having a combination of three-tour operators, then yes, we have a look at that. But we consider that the price ask for the entire group was just too high for us to pursue that into that direction.

Okay, okay, good color there. And with the recent outcome of the U.S.

election, I was just wondering if you have seen any change in the tone or moves from your U.S. competitor around their strategy in the – with the Cuban markets?

We also had many flights operate between the U.S. and Cuba.

We saw recently – just recently reduction in size of plane and numbers of flights. But quite honestly, it’s really the beginning of the season then it’s tough to determine where it will end and where we’re looking at that closely, let’s say.

Okay. And just the last one for me.

The winter has been harsher in the last few weeks, at least, out East here, as you probably noticed. I was just wondering if you have seen any material change in your booking over the last month or so that could also influence your performance in the first quarter more specifically?

Booking has been good in the recent weeks. Booking has been good, yes.

Okay, perfect.

It was related only to weather or all other circumstances. But the demand was generally good in the last few weeks, yes.

Okay. But you haven’t seen any major bumps in your booking, even though it was positive, it was not – may not result of the weather in your view?

I will make that comment. There is a – when looking at the market, we have to look at a combination of two factors; demand and pricing also.

And no surprise, we’re trying to maximize revenue then – that’s the reason why our prices are moving all the time. Then we’re okay with load factors that we have, as we speak.

And we have – we are obviously trying to optimize our revenue in that perspective.

Okay, perfect. Thank you very much for the time.

Thank you.

Hi, good morning. Just to clarify for the $25 million in savings you’re looking for next year, is that something that will be front-loaded, or will it be realized fairly evenly throughout the year?

It will be realized through the years. But at the end of the new initiatives, we’ll end up by having, as we evaluate, and in back of $25 million, or our costs on or our revenues.

I use the example of ancillary revenues that will be generated through the years, where other initiatives like some changes that we have decided to do like putting the two call centers together then that one will have an impact day one. Then it’s really a combination of through the years and some of the beginning that we have to wait or increase our cost or increase our ancillary revenue by the $25 million.

Okay.

I think the luggage right now, the luggage on the air-only market – Jean-Marc Eustache speaking. On the air-only market, the Caribbean, now we’re charging the luggage.

So that will be new – so things like that will help to maximize ancillary revenues.

Okay. Thank you.

And on the H10 Hotels, if we can increase your ownership to 100%, is there any benefit in keeping the 35% stake as is partners on track to meet the 2019 objective. It sounds like it’s a profitable venture and it helps – we would help diversify your hotel business and then you can take a 100% ownership in something else?

No. But we had a discussion with our associate, and we decided together that or we go and we go to 100%, or if we don’t want to go to 100%, he’s ready to buy 35%.

So but our main goal is to really be in the hotel business 100% owner and to be sure like that that, we control the product, we differentiate the product also. So but this gives us flexibility, because at the end of the day, if we don’t agree badly, she will buy us.

And at the end of the day, we could do something out. We do with somebody else, because as you know, we are in discussions with a lot of players right now.

And you saw, I suppose yesterday that the hotel has been bought or went public for $1.765 billion, if I remember. So that give you an idea that the hotels right now for the past, I would say, almost seven years now, eight years, I’ve been doing very well in the Caribbean.

So we really have to control our product and to change Transat with that.

Okay. Thank you very much.

That’s it for me.

Hi, thank you for taking my questions. Just a quick one for me regarding the Ocean Hotels, you cited revenue of $100 million and EBITDA of $35 million, but in your press release you said, there were some operational improvements.

So I’m just wondering do the economics of the JV standstill on a FX currency basis, and can we use this number for forecasting incremental rooms, I see that on new hotel in Mexico is coming online then?

Yes, it’s a very good proxy. Please always differentiate the hotel, where we own the wall versus the hotel that we manage when and we are trying to give you the the total, but also the numbers for each of them, because obviously, the return on hotel that you own is a lot, or the EBITDA that you generate on hotel that your own is a lot higher than where – when you manage an hotel, as an example, for someone else, but it’s a very good proxy.

Okay. Thank you.

And a quick one for me, last one here, regarding your excess cash. Is this all earmarked for a hotel acquisition, or is there some allocate to U.S.

tour operator, and how do you view the capital structure of these acquisitions?

The…

Okay, go ahead.

The excess cash is for any kind of projects. But we say that hotel is a top priority for us, and second and only second tour operators in the U.S.

Like I said earlier, if and a huge opportunity was to come to us for the – for a tour operator in the U.S., maybe that will influence us. But our plan is to do both of us and tour operators in U.S.

in the second thing.

And regarding the capital structure, I think, before you cited around 50% that is possible for a hotel acquisition?

What – sorry, what you mean by that exactly?

Is it – is the acquisition you refinance entirely with the cash on hand, or are you plan on raising your debt at the same level and whether you’re comfortable within – in that range?

With the multiple in the market for acquisition of hotel, the – and for the size of a hotel that we’re looking at the C$150 million Canadian will surely not be sufficient. You just use the EBITDA of $35 million U.S.

and use a multiple of $10 million, $10 million and you see what the value of a hotel could be. Now obtaining using the numbers, a good portion of it could be financed with banks, like mortgage, and the rest of it have to be financed with other sorts of cash, or on our free cash, or other source of – sources of cash that we’ll need to complete the transaction.

Then the C$150 translated in U.S. give you US$100 million.

With that you buy something very, very small.

Okay. Thank you.

That’s all I have.

Okay.

So thank you, everyone. So let me remind you that our first quarters will be released on March 16, 2016 [Sic] 2017.

Thank you. Have a good day and a good holiday season.

Thank you very much. Bye, everybody.