In the process of transforming from a tour operator into an airline, Air Transat is a Canadian company founded in 1987 and based in Montreal, Quebec. It operates flights serving 60 destinations in over 25 countries.
You joined Air Transat during a period of considerable change. Now in 2024, how has the identity and vision of the company evolved?
When I joined Air Transat, the company was undergoing a significant transformation. Traditionally a tour operator like North American versions of TUI or Thomas Cook, we shifted towards a more classical airline approach with a hub-and-spoke system in Montreal and Toronto; this required extensive work, both commercially and operationally adopting a fully digitalized, modern airline model. We’ve moved from primarily selling tour packages to selling about 70% of seats independently and anticipate completing nearly 80-90% of this transformation by the end of the year.
Our future focuses also include advancing technology, commercial growth, and sustainability. Sustainable Aviation Fuel (SAF) and continuous fleet renewal are key priorities. We are aiming for an aspirational target of 10% SAF supply by 2030, although local production challenges in Canada exist. Our commitment to sustainability also includes reducing single-use plastic items and improving business practices.
What exactly does fully digitizing the process consist of from an airline perspective?
People often think about user experience first, but digitization goes far beyond that. The backbone of an airline includes many traditional, paper-heavy processes that need modernization. For example, maintenance logbooks still require paper signatures. Digital documentation for an aircraft's life cycle eliminates a truckload of paper per aircraft, which is a huge environmental benefit. Artificial intelligence (AI) is another area we're exploring since it can improve efficiency and accuracy from language models to predictive maintenance. For example, AI can help us predict when components will wear out, allowing us to replace them precisely when needed, reducing waste and avoiding unexpected maintenance issues. Detecting maintenance problems enhances accuracy which means we can avoid unnecessary replacements and better anticipate needs, reducing unplanned groundings. Modern aircraft, combined with advanced tools, can detect minor issues that human engineers might miss. These systems can predict potential failures by analyzing numerous data points, ensuring more proactive maintenance.
The main challenges to adopting these new technologies are foundational, as these technologies are new and require time to integrate. This process involves patience, the right personnel, and collaboration with regulators to ensure safety. While not barriers per se, these steps require effort and cooperation. For instance, integrating engineers with IT experts to create seamless systems is crucial. Working with regulators, who are also adapting to these new technologies, is essential to ensure safety standards. This collaborative effort, rather than posing a barrier, ensures that the implementation of new technologies is both effective and safe.
How does Air Transat plan to remain competitive given the highly competitive nature of the carrier market in Canada?
The Canadian market's unique characteristics make it challenging for low-cost carriers (LCCs) to thrive due to long distances and fewer population centers. Major players like WestJet, Air Canada, and us, along with Porter, remain strong. The market is consolidating, with WestJet focusing on its core product and integrating Sunwing. This is more about streamlining operations rather than reducing competition. We differentiate ourselves through our unique style and history as a tour operator. Our niche includes French-speaking markets in Quebec and Eastern Canada, as well as a strong presence in Europe, Mexico, the Caribbean, and Northern Africa. We cater to a cost-conscious business traveler with a quality premium economy product, offering a distinct edge in the market.
While inflation has driven tougher negotiations, our brand's strong market presence helps attract talent. Collective bargaining is a natural response to inflation, and we've seen our turnover rates stabilize. The workforce situation is normalizing, and we're managing to attract and retain quality staff. Competition for employees, especially from attractive employers like Air Canada, is always present. However, our turnover rates have significantly decreased over the past 12 months. We're seeing a return to more stable workforce conditions. We were recently voted the world’s best leisure airline by Skytrax. This recognition highlights our unique niche and quality service. Our history as a tour operator means we offer more than just flights; we provide a complete travel experience. From ticket purchases to the journey itself, our brand embodies leisure and fun.
Based on your observations of traveller trends, do you expect the surge in travel demand post-pandemic to continue?
2023 saw a unique surge as everyone wanted to travel post-pandemic. Now, we're seeing a return to a more normal business environment, with yields softening as people manage their budgets like before 2020. This trend suggests we're rejoining the pre-pandemic growth trajectory. The underlying macro trends driving air travel, such as increasing affluence in lower and middle-income countries, GDP growth, and urbanization, remain intact.
Business travel has changed slightly, with more remote meetings replacing some in-person ones. However, the need for personal interaction ensures that business travel is returning. These underlying trends, confirmed by market studies from Boeing and Airbus, indicate continued growth in air travel, despite some changes in business travel patterns. While we're not deeply into the lower and middle-income markets, globally, these regions show significant potential due to their growing populations and rising affluence. We are present in some areas, such as centers in the Americas, but the larger growth opportunities lie in other countries with significant population numbers.
What is the motivation behind your new joint venture with Porter Airlines, and do you have any other partnerships in the works?
Porter and Air Transat are highly complementary. Porter's fleet of smaller jets and turboprops serves routes we don't, whereas we focus on long-range flights. This partnership benefits both companies, providing Porter with a long-range network and us with a feeder network. It's a natural fit that promises significant mutual benefits.
While joining a global alliance might be considered in the future, our current focus is on making the partnership with Porter successful. Together, we have a fleet of 100+ aircraft, making us a formidable presence in the market. Alliances offer a larger reach and better network integration and provide a larger commercial footprint and opportunities for deeper business alignments, like the Air France-Delta-Virgin joint venture. This can strengthen our commercial presence and open up further development opportunities.
