Transat A.T. Inc.

Christophe Hennebelle - VP Corporate Affairs Jean-Marc Eustache - CEO Denis Pétrin - CFO

Mona Nazir - Laurentian Bank Securities Benoit Poirier - Desjardins Securities David Tyerman - Cormark Securities Tim James - TD Securities Turan Quettawala - Scotiabank Ahmad Shaath - Beacon Securities Ltd.

Thank you. Good morning, everyone, and welcome to the Transat conference call for the presentation of the financial results of the Second Quarter ended April 30, 2017.

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 investor's presentation has been updated and is posted on our Web site 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 those 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 June 9, 2017 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, such future events or otherwise other than as required by law. Finally, we may refer to IFRS and non-IFRS financial measures.

In addition to IFRS financial measures, we are using non-IFRS measures to assess the corporation's operational performance. It's likely that the non-IFRS financial measures used by the corporation will not be comparable to similar measures reported by other issuers, or those used by financial analyst as their measure may be different -- may have different definitions.

The measures used by the corporation are furnished to provide additional information and should not be considered in isolation or as a substitute to IFRS financial performance measures. Additional information on non-IFRS financial measures such as their definition and their reconciliation with the more comparable IFRS measures are available in our quarterly report.

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

Thank you, Christophe. Good morning, everyone.

As usual I will review the financial results and then share our outlook for the summer season. I will also say a few words on the status of some initiatives of our strategic plan.

Our results for the quarter are in line with what was communicated mid March, better than last year on Sun Destinations, even after taking into account a negative impact of the U.S dollar and fuel, lower for Trans-Atlantic, slightly better global. Despite our efforts to decrease our costs and improve our margins, the combined effect of the U.S dollar and fuel has made our operating costs to up offsetting a significant portion of the impact of actual [indiscernible] we’ve managed to realize.

For the entire winter, the variance resulted in additional cost of $39 million versus 2016 and more than $120 million on a cumulative basis over four years ago. For Q2, results were as follows for all markets combined: Revenues at $884 million, were similar to last year with higher selling prices, but with different mix of products sold which included a higher proportion of flight sold without rent portion compared to 2016.

We posted an adjusted operating income of $1.5 million versus an adjusted operating loss of $5 million last year. The adjusted net loss excluding non-operating items was $8 million compared with $12 million in 2016.

The net loss attributable to shareholders as per financial statements was $8 million compared with $25 million last year. On our Sun Destinations program, our main markets are in the winter.

Capacity in Q2 was stable. Selling prices of our packages were 5.5% higher or $79, and a higher proportion of seats were sold versus last year.

Our load factor was 91.3%, an improvement of 0.2%. The combined impact of the U.S dollar and fuel on cost of packages represent an increase of $41 per traveler or 2.9%.

Margin were higher by 1.4% versus last year. On Trans-Atlantic routes where it’s the low season.

Capacity was 9% higher than last year, mainly on London and Paris. Selling prices were up 1.4% and our load factor was down 0.9%.

Profitability for the program was lower than last year in Q2. Ocean Hotels now that we own a 35%, another strong Q2 which contributed $5.8 million to our quarterly results compared with $6.3 million a year-ago.

The value of our investment now stands at $109 million. So all-in-all no surprises this quarter.

A glimpse of -- at the summer outlook now. On the Trans-Atlantic market when compared with the summer of 2016, global capacity on the market is 4% higher.

Transat's capacity is up 7% and 64% of that capacity has been sold. Back in March, bookings were up 6.6%, load factor were up 0.2% and fares were 4.8% lower.

Currently bookings are up 10%, load factors are up 1.4% and fares are now similar to the one of last year. The implementation of the feeder program has contributed an increase in cost.

As we speak, the combined effect of fuel costs and currency fluctuations will not result in any increase in operating expenses. On sun destinations with 53% of our capacity sold, the load factor are up versus last year 8% and prices are up 5.9% leading to an increase of 3% in unit margins.

Since March, we’ve consistently seen positive signs. Bookings have been sold and prices higher than last year on both Trans-Atlantic and Sun markets.

Globally, we’re still slightly behind last year at the same day. However, if the trends holds, summer operating income will be similar to last year.

Now for our balance sheet. The corporation's free cash totaled $566million as at April 30, an increase of $126 million versus a year-ago, and our facilities obviously remain unused.

Cash increase is mainly due to the selling of subsidiaries in France and Greece in October. And the use of our new reservation platform which allows Air Transat to sell seats directly to our customers rather than via our tour operator Transat Tours Canada, as a result funds received from clients are directly deposited in our unrestricted cash account, as it is a case with all airlines.

In addition, deposit from customers for future travel were $524 million compared with $484 million, an increase of $40 versus last year. Off-balance-sheet agreements stood at $770 million at April 30, 2017.

As part of our strategic plan for 2017, we will continue to reduce costs and improve margins to help us reach our target of $100 million over three years compared with 2014. We are on track to deliver the remaining $25 million in 2017.

We will improve the competitiveness of our distribution, notably by reinforcing our products offering and network and by continuing to increase our controlled sales. We will pursue the initiative to optimize our revenue management.

We will continue to improve Air Transat operational efficiency, and plan for the optimization and renewal of our fleet. Finally, we will work on our objectives to control hotels in the south.

In April, we invested in an hotel in Puerto Vallarta, which operates under the name of Rancho Banderas All Suites Resort by acquiring 50% of its owner shares for a cash consideration of US$10 million. By '18, we will expand the hotel from 49 to more than 260 rooms.

It will be managed by our partners, the managing team of the Marival Group, which also owns a 30% interest in our incoming tour operators in the south. Discussions are still ongoing with our partner in Ocean Hotels and we will shortly come to a decision as to whether we will be able to more efficiently reach our target by acquiring 100% of ocean or by selling our interest to H10, then using the proceed for other investment in hotel industry.

In short, the results for the winter and possibly for the year will look like last year. However, we see some significant underlying operating improvement, especially for the south even if they were offset this year by adverse effects in currency and fuel costs.

This make us optimistic on our capacity to reverse the trend in the near future. We will now proceed with your questions.

Operator, please?

Good morning and thank you for taking my questions. Firstly, I just wanted to talk on the implementation of the feeder program and the increased cost there.

Is that one-time cost increase or is it recurring? And is it just higher because the operating costs of doing the domestic scheduled flights are more?

First, we call that domestic feeder program. That is really a feeder program.

So its flight between example Vancouver-Toronto, Calgary-Toronto, Vancouver-Montreal, Toronto-Montreal, Montreal-Toronto. Most of those -- so we tripled the program this year, talking about the number of seats because we see that we can bring a lot of people on our European flights.

And also from Europe, European coming to Canada and continuing on those flights. So its -- and the rest of the seats are selling domestic when there is not use for the feeder.

And as you know we don’t want to compete with the other guys that are really in the domestic business, we’re not in that business, because it's -- we start that last summer, you know quite well, so we tripled the program this year and because it's quite new and we’re not sure about what will be the profitability of that program at the end of the summer. And as you know when its feeder, it sell in advance, but domestically it's last minute, so we really don’t know that domestic program.

So we don’t know what will be the end of that program financially. So we’ve been very careful and that’s why we’re saying that everything is going well.

We had capacity, we had more -- we’ve better load factor even with the capacity that we’ve, we sell more -- a lot more seats than last year and also the price are now almost -- they’re the same and like Denis said for months now, prices are going up and up every day. But don’t -- not be sure with that program and what will be the profitability, because it's a new program.

We are a little bit conservative and we want -- that’s why we’re saying that at the end of the day at least we should be at the same level than last year. We don’t want to say that maybe we should be better, but we’re -- its too early for that type of program.

So its brand new for us, so that’s why we’re saying that. I don’t know if I’m clear, you understand what do I mean by that.

Yes, that was good and I understand. Okay.

And then just moving on to my second question, I understand just from reading some articles out there on passenger experience that some of the flights that were operating expected to be direct to southern destinations had some unscheduled stops. I’m just wondering if you could touch on the potential impact from this kind of multiple stop strategy?

Has that hindered operating costs and have you seen any impact to either the customer satisfaction or brand?

Okay. You’re talking about the article and the -- what you call that from the CBC, that’s what you’re talking and about -- the thing about …?

Yes.

Okay. Number one, we don’t have enough plane during the summer season going to the Caribbean and Mexico.

So we use third-party for years. We used to use Enerjet, but Enerjet don’t have any more plane in Canada.

After that we used Canadian North and now we’re using Flair [ph] for this summer. The most of the flights are direct-- even if you don’t stop, it's a direct flight.

So first number one, in the industry, that’s the way it work. Sometime when the winds are very strong, especially on the return, so an example Cancun, Calgary, you could ask to stop and resume the plane because as you know you should have always enough fuel to if something happen to go to another airport, closer airport.

So at the end of the day, it happened. So I’m going to give you some figures because they make a big affair with that, we’re not the only one.

It happened to everybody, every time. I don’t know what happened there.

I think somebody in there said something, I don’t know really to give you an idea. In the last three years we had 0.1%, so less than a 1% of plane that stopped to refuel.

This year, we had 29 tech stops, including the fuel on 12,903 flights, so that’s 0.2%. So at the end of the day, considering the high volume of Air Transat operation, the number of technical stops is really, really marginal.

We have the situation with a few subcontract flight like I said before, and they’re no regulatory or safety risk with these flights at the end of the day. So it's really exceptional cases when it happened and that’s it.

I have nothing else to say. It's not -- I don't understand why it's a big story about that.

It happen every day with every airline in the world. So that’s answer your question?

Well, I’m glad I asked so you could clarify. So that was very helpful.

Thanks.

Welcome.

And then just one last quick question before I step back in queue and its more to the housekeeping. I’m looking for some clarity and maybe Denis this is for you.

In Note 8 in the statement that touches on your investments and the book value of the Ocean JV is up nearly $10 million quarter-over-quarter. And I understand that there is a translation that was negative last quarter and then positive to this, but net-net the share of net income is up to 9.4 from 3.6.

How has it increased so significantly in one quarter? Am I missing something?

I mean, your ownership is the same, what changed?

Mona, is it possible that you’re looking at the reconciliation for the six-month period? Maybe I could take that offline.

Yes, we will take it off -- we could take it offline, yes.

Yes. But the way it works is value of the previous period quarter or at the end of last year plus our fair share of the profitability during the period less the dividend if there is any dividend paid over the period and the last one, because it's an investment in U.S dollar, we just translate that U.S dollar into Canadian dollar that’s plus rate at the end.

This is why there is always a variance coming from the conversion into Canadian dollar at the end of the period. But -- and in the MD&A, that was a reconciliation over six months showing this [multiple speakers] …

Okay. That is [multiple speakers], yes.

… you see at the beginning that its October 16 where we are started, but if you wants to get offline, I will [multiple speakers].

Yes, that could be it, yes. Thank you.

Good morning, gentlemen. Just to come back on the Ocean Hotel strategy, it seems that the decision in upcoming shortly, but I was just wondering whether you have a plan B assuming that you’re unable to acquire the remaining stake in Ocean Hotel?

If we don’t finalize this in acquiring the part of H10, the 65% like we said since day one, we have an agreement with both parties that they will acquire 35%. It will be -- I cannot say it, because its confidential and it's not finished.

So lot of cash. So if we do that, we will start from scratch, a new company, hotel company with the cash that we have and we are right now talking with someone that will take over this new company, President of Transat.

So we will announce in the near future we will be the President of that company, what this company will looks likes, and at the end of the day we will do what we said, like we always said that we will do the hotel company. Sometimes it takes time to do a deal, because when the owner is private and he is making good money and we are making as you see good money we are in, it's difficult to take a decision and to sell part of your life and you're not in a hurry because you're the sole owner, so you don’t have pressure from anyone, could be today, tomorrow, after tomorrow or in one year, it doesn't change anything at the end of the year, especially when you're making good money.

So saying that that's why it seems to the market that it will take -- it is taking time to do that. But at the end of the day, Transat even if it's a public company, will take the time necessary to do the things right like we've been always done since the past 12 [ph] years to be sure that at the end of the day we don’t do crazy things.

We don’t spend too much money or we don't borrow too much cash to be sure that at the end of the day the shareholder will be happy with what we’re doing. And right now I can tell you that the main shareholders of Transat are telling me, Jean-Marc, do what you have to do, take your time, don’t do crazy things and like few of them said to me and even a couple of banker, cash is king.

So sometimes better to sit on your cash and to wait when it's the right time to do a deal. So coming back to your question, yes, we want to buy the 65%, if we can have an agreement the way we want.

If not, we will sell our 35% and with this cash and other cash that we’ve in the Company, keeping some cash to be sure that we can continue the Company if something goes bad, especially when you see what's happening right now in Belgium, France, U.K., even Ireland now. So we will keep some cash and the rest will be to do a deal to have a company, and like we said, the other thing its -- now it's coming, you don't see it exactly right now, but I can tell you you’re going to see it this -- even this summer, we’re fixing the company, because we’ve a problem.

We are fixing this problem and Transat will be back on track with good profitability and happy shareholders.

Okay. That’s very good color.

Jean-Marc, thanks. And just maybe for Denis, mentioned about the acquisition of the hotel in Puerto Vallarta, and also the intention to grow the number of rooms from 49 to 260.

So I was wondering what would be the implication from an investment standpoint to increase the number of rooms?

We don’t expect to have to invest a significant amount of money. We -- in our plan, we are very, very confident to be able to find the cash globally and borrow to cover the cost of the construction, then there will be no plan to again to have to invent -- invest significant amount of money in order to finalize the -- to do the construction and -- because it will be financed.

Okay. Okay, perfect.

And, yes, -- and if we look at the announcement also you mentioned that there was a higher proportion of flights sold without the land portion in the quarter. I was just wondering if you could provide more color about the mix versus a few years ago and if it is -- if this is a new trend going forward and what type of implication on the margins?

In many of the destination that we’re doing during the winter month, are people interested to go there, because they have their own condo, they make their own arrangement, then it's not something that was -- that we were really focusing on and because we’re flying to all those destination, we just open up the sales for this and we started to have good results coming from that sector then we manage both. For people who wants to buy packages, obviously no problem, but if people wants to get to their condo in Puerto Vallarta, they could buy seats with us and we have -- that’s a frequency on many, many destinations and very convenient for people who have this place or there -- where they make their arrangement by themselves.

Then we will not really share the detail of what’s the percentage, but it's going to be significant. It starts to be significant and the margin that we could generate on this is also good, because we could imagine the people are going to those destination have booked a specific week and they need to get there and it's not something where you could say, if it's not to that destination, I will go to another one, then they book in advance and the margins are okay when we’re selling that.

Then it's good business.

Okay. That’s great.

So it's really incremental revenue opportunities for you given the -- okay, perfect. That’s great.

Absolutely.

Yes, okay. Good color.

And now could you maybe provide some color about the WestJet's strategy with respect to the long-haul distance, whether you should expect any changes in the competitive landscape? What type of impact on to that?

I think, Benoit, you should ask your question directly to them on this one. They are -- what we -- what was of interest for us is when they were putting capacity on London, because where it's a market that it's a very important market for us.

But in term of their strategy and where we will deploy their 787 and all this, then -- we will not comment on that.

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

Okay.

Yes, good morning Denis, and Jean-Marc.

Good morning.

My first question is on second half guidance. So you’re guiding to relatively flat results, but when I look at the sub components, it sounds like they should be better, your capacity is up on the Trans-Atlantic, your load factors are up, you’re saying that bookings and prices are improving.

And then on the Sun Destinations, you said the margins are up 3% on flight capacity, all that sounds like it should lead to higher results. So I’m just wondering why you're suggesting flat overall?

Your right with what you said, the indicators that we have put in the outlook for bookings or pricing for the FX of fuel, the impact of fuel and FX, no impact, and [technical difficulty] improvement also versus last time we reported in March. As Jean-Marc explained at the beginning, what is not covered in the outlook really is the cost portion and in the cost portion there are natural indication of cost.

Let's assume that this could be of 1% to 2%, I mean, lending, salary, and things like that. But on top of this, this summer we have grown our feeder program and because the feeder program is to support and to help the Trans-Atlantic program, that brings additional costs.

Those flights that Jean-Marc described between Montreal and Toronto and Calgary and Toronto, those costs have to be put somewhere. And because the revenue from the domestic which we expect to be not very high, will not cover all those costs, then we attributed those cost to the Trans-Atlantic program.

And -- it is because really of those additional costs that when you put the positive KPIs reported, net of -- and considering the impact of these additional costs that we say that it should be similar with the calculation that we’ve done up to now, but you have noticed in our press release that we’re also -- we’ve also included where we were at mid-March and there were lots of improvement in gains, in pricing, like in every category on Trans-Atlantic on the Sun Destination, but it's still early to -- that’s like results will be -- could be a little better, could be similar, but this is to capture this aspect of cost that we’ve said at the end summer should be similar than the one of last year.

Okay. That's helpful.

That explains a lot. The second question I had, the terrorist actions we’ve seen, and may be its a little early, but I’m wondering if you seen any effect from that?

I mean, you’ve cited terrorist actions is having issues in the past, so I’m not sure if you have any views on what could go happen this summer from that?

You know very early to say and there is lots of factors, but bookings are still -- when we are looking at global booking for the Trans-Atlantic program, still very strong. Obviously, when things happen -- very sad things happen in specific cities, we tend to see reaction from -- on the booking side, but nothing very significant as we speak.

Nothing very significant.

Okay. That’s helpful.

Thank you. And then on the Rancho Banderas investment, is it possible that you could do more work with Gesmex …

That is possible.

… [multiple speakers] partner?

That’s possible. But this is the -- what we have on the table today is to do that specific project.

We have [technical difficulty] I think we mentioned that these partners already manage hotels, but they are also a minority shareholders in one of our business taking care of customers in that we are bringing in Mexico and Dominican Republic, they’re doing good jobs for many, many years with us and it's a relationship that we find opportunity to continue to develop this relationship with them and that's why we did that in the last quarter.

Okay. Could they become a partner like you have with H10 or …?

That exactly the same, because first of all we will not go for a 35%, that’s number one. And number two, we will be more -- I will just say that active partner than silent partner.

In H10, really we’re silent a silent partner.

Okay.

But right now the only thing it's doing its Rancho Banderas. We are not doing another hotel to be clear.

Okay. Okay, that’s fine.

The other question I had, the first half was weak like it was last year, maybe a little better, but still very low compared to previous year. I’m just wondering what it takes to improve, because it doesn’t seem to me that this year there was anything unusual like, yes, the dollar was weak and yes fuel was up, but we already knew that going into the first half like it didn't move around a lot.

So it didn’t seem to me that there was a lot of shocks here that would cause the results to be weak and yet they were still quite weak. So just wondering what does it take to get the first half really going and doing better?

Number one, if the fuel and the dollar could not have $39 million of cost, that’s something -- maybe for you, it's nothing, but for us it's a lot of cash at the end of the day. We are selling 1 million packages, so $39 million is something on line.

Number two, it’s -- you have capacity. The capacity that was added this winter it was especially by one guy was terrible.

So at the end of the day, too much capacity. That's part number two.

I think for the rest we can manage it, no problem. I'd like just to give you an example that the price of the packages from Transat went up by $80 from last year, so it's quite good.

But even with $80 at the end of the day, because of the fuel, because of the overcapacity, and the price that the other guys are doing and because we have just one product to sell to be clear, we have Caribbean, Mexico to sell in the winter. At the end of the day its difficult and it's something that I think we're going to change the way we're talking about our business.

You see the -- I was looking at what the other guys are doing like TUI for example or even the airline, they talk by quarter. They don’t talk by the segmentation.

So at the end of the day, I was looking at whether our competitor -- we had the bad quarter, last quarter and the stock went up. So I'm saying to myself, Jesus Christ, why I'm -- how you say that in English, [indiscernible] myself.

How do you say that in English?

Self inflicted wound.

Okay, you understand? Myself by saying, at the end of the day, I’m not good in the quarter.

At the end of the day, it's the year that counts. Do we make money at the end of the day or do we don’t make money?

We don’t make money, that’s one thing. If we make money, that’s another thing.

So I think that we’re going to present Transat another way we start to ask about 10, 12 years ago to present Transat this way, where we’re not presenting Transat this -- that way before. So at the end of the day, if I’m making money full-year, and I should do something else, then just in the winter, Caribbean and Mexico, because the other guy, what they’re doing, they’re doing Caribbean, Mexico, domestic, transborder, Europe, Asia, a lot of things like that.

So maybe Transat should do something else than just Mexico and Caribbean. So at the end of the day we're looking at that.

We have a new, how do you call that, development plan coming up, and we said this plan we should do this year the hotels, that will be done by the end of the year, that's for sure. And we should do with the plan 2018, 2020 something different.

And to finish to be clear, because your life at the end of the day we have to fix once forever the company and we will fix once forever this company. So we’re going to do that and we will see next winter, I think next winter should be -- the fuel don't go crazy or the dollar don't go down too much and when I see the capacity that is added until now, it's not too early, so winter should be better next winter.

Okay. Thank you very much.

Welcome.

Thank you. Good morning.

In terms of the outlook, I’m wondering what you attribute to the improvements in pricing trends and demand trends on the Trans-Atlantic to since February?

We start like we always start with low prices and we’re following everyone, especially on the U.K markets we were following British Airways. British Airways this winter or the summer, had a different way of pricing.

They were pricing very, very low. So we have to follow that.

So the price were down, very down and for sure we start very low. But week after week, price are going up.

If you look by yourself, you will see it right away. And the booking this year is not too much having capacity by everybody.

It's more reasonable, number two. And number three, we see that the prices are going up, so everybody is following at the end of the day.

So like we said, we’ve more seats sold, better load factor, prices similar now than last year and going up. So I don’t know what’s going to happen tomorrow, but if there's just too much -- not too much problem in the world, the price should go -- continue to go up.

So at the end of the day, you should be not a bad summer for everybody as I wish [ph].

Okay. So, are you suggesting then because BA was pricing very aggressively early on that was reflected in kind of your view back in February, March whereas now they've reverted a bit more to normal pricing actions and then -- therefore you’ve seen a sort of a greater recovery in your expectations, because of that?

One -- that’s one of the things, yes, because when one big guy on the big market like U.K., as you know U.K., is our second market. And U.K represent 25% of our capacity on Europe.

So for sure, if someone is pricing very low, you don't have a choice to follow and everybody follow at the end of the day. But when -- if things go better and everybody is putting the price up, that’s --so that's what happening for every week since January.

Okay, great. That’s the only question I have.

Thank you very much.

Thank you.

Welcome.

Yes. Hi, good morning.

I just had one question on the new hotel venture the Rancho Banderas that you just bought. Is there any EBIT contribution from there, Denis, or is just too small?

At this point, the contribution is really minimal. The project really is to use the piece of land that is there and construct the new portion and after that then we will get profitability from the investment.

But we’re talking about an hotel of -- how much, roughly 260 rooms, then the contribution will be in proportion. It's not big hotel.

Okay. Fair enough.

Okay. And then I guess I think I missed your comments Jean-Marc a little bit.

Could you elaborate again on the control aspect of this, because I guess do you have more control over this JV, I guess versus the H10. I know you own more of this, but it's still a 50% interest?

Yes, but it's completely different than H10 for a few reasons. First, the agreement that we have with the -- with our partner is different than the agreement that we had before with H10.

H10 it was really clear day one that we will be silent partner and we agree on that. So it was not imposed, we agree on that.

This agreement is different, number one. Number two, this partner is a very, very long partner with us.

First is operating with us or operation destination services in Mexico, Dominican Republic, Jamaica, so -- and it has 30% of this company and we have 70% of the company. So it will be running the way -- the same way that's what we’re running right now.

And the other thing is this partner, we sell the hotels in Puerto Vallarta and especially in Nuevo Vallarta, and we’ve been signing these hotel and some of them completely exclusively for years, so it's a different set up and it's a different partnership. So at the end of the day for this, but it's just an hotel and it's in an opportunity that we have, because we have the land and we just had 29 rooms on the land, the land was fantastic, and we could build another 200 something room, so we decide okay, as fast to invest $10 million and at the end of the day we will be partner in that.

So we said there's no risk. $10 million is not a big amount and it's a good partner.

So that's why we did it, but that's not the beginning of something to be clear. We have to understand that we will not go with a 50-50 percent partnership in the hotel business.

We want to control our destiny in the hotel business. We want to have not just the majority, we want to have 100% of the company.

Okay. That’s what I thought.

Thank you for clarifying that. And I guess just one more for me on the D&A side.

Denis, it went up quite a bit this quarter, is there a specific reason for that, that maybe I missed?

Depreciation. The increase is mainly due to the operation on -- what we -- for the aircraft that we own, when it’s going to do the maintenance or C-check or engine.

When you own the plane you capitalize the disbursement and you amortize it versus when you -- when you lease plane, then all this go through maintenance. Then we have to do some specific -- we have to do a couple of C-checks on our 310, it’s all related to our 310 fleet, and repair engine and this is what have to be put to the P&L.

Okay. So I guess this is a new run rate then?

Say that again?

Is that the new run rate, sorry.

No.

A little high this quarter, a little high. I will not consider that the run rate.

We have to remove a couple of millions if we were to probably closer to '15 and to '17.

Okay. That’s perfect.

Thank you so much.

Okay.

Hi, guys. Just a quick question, housekeeping item.

Do you guys touch on the excess cash that you guys have currently on the balance sheet? Thanks.

We have last fall that what we consider -- and when it’s time to looking excess cash, we will look at that at the lowest period and this is the middle of December than -- as last year, we expect by the end of this year without considering any transaction that will have roughly in our bank account on that period $300 million. On that $300 million, we consider that $150 million is something that we should not touch and use, but just keep that, because it’s necessary to have certain amount of cash within the company.

On top of this remains another tranche of $150 million and this is what we intend to invest. And like we’re saying earlier, in the hotel sectors, and this is what’s ready to be invested.

And when we’re looking at Ocean Hotels, if we were to acquire that, this portion will be used to finance a portion of the financing cost to acquire the 65%. If we do another project, this is -- I will make the same comment, this CAD$150 million will be available to invest into the hotel sector.

At this point in time, this is the plan that we have and not to distribute the cash to shareholders. We really want to invest into that sector and this is a sector, the hotel industry that require a significant investment and the reason why we want to keep that cash for that purpose.

Okay. That’s perfect.

Thank you, Jean.

Thank you.

Yes, I just wanted to clarify something Jean-Marc said, in the plan B if you can get the Ocean Hotels venture, you said you were going to start up a new company from scratch and I think you said you had someone who was going to have a role in it. I was just wondering if you would repeat what that would be?

Is this a person who would run it or is it a partner organization or what?

No, no. no.

It's a person. It's a team that we are going to put together to run the hotel business, not partnership at all, employees.

Okay. Okay.

So it sounds like somebody that you know or you're talking to who is an expert in hotels and then they will put together a team, is that the idea?

Yes, because we’re closer to do something, so we need to have someone running the business.

Right. Okay, that's very helpful.

Thank you.

So thank you very much everyone. Let me just remind you that the release of our third quarter results will be on September 7, 2017.

With that, let me wish you a very good rest of your day. Thanks.

Bye, bye.

Thank you very much. Bye.