Transat A.T. Inc. (TSX: TRZ) reported $105 million in additional jet fuel costs for the third quarter of 2026 compared to the same period in 2025.

The Montreal-based leisure airline disclosed that the cumulative impact of higher fuel prices has reached approximately $175 million since the prolonged closure of the Strait of Hormuz.

Cost Pressure and Pass-Through Limits

The surge in energy expenses stems from volatility in global markets, a trend the International Air Transport Association (IATA) expects to persist in the short and medium term. Transat noted that its ability to pass these increased costs on to customers has remained "very limited" to date.

To address the financial strain, the company is actively engaging with the federal government to explore potential solutions. Management highlighted ongoing efforts to mitigate operational impacts while navigating the constrained pricing environment.

What the Numbers Show

The data reveals a significant acceleration in cost exposure during the third quarter. The $105 million incremental cost in Q3 alone accounts for approximately 60% of the total $175 million cumulative impact since the Strait of Hormuz closure began. This concentration suggests that recent quarters have borne the brunt of the price escalation, intensifying pressure on margins as pass-through mechanisms remain ineffective.

Transat A.T. Inc. reported a net loss of $79.0 million for the second quarter of fiscal 2026, ended April 30, 2026, missing analyst estimates due to a significant deterioration in profitability driven by an unprecedented aviation fuel crisis and the suspension of flights to Cuba. The company posted a net loss of $(2.58) per share, compared to adjusted net earnings of $0.12 per share in the same period last year. Quarterly sales reached $1.003 billion, a decrease from $1.031 billion in the prior year, while adjusted EBITDA swung to a loss of $21 million from a profit of $98 million a year earlier.

Second Quarter Financial Performance

The combined impact of higher fuel costs and the Cuba flight suspension negatively affected adjusted EBITDA by approximately $95 million. Of this total, roughly $70 million is attributable to higher fuel costs incurred in March and April, while the suspension of Cuba operations contributed approximately $25 million. The net loss widened to $79.0 million, or $1.94 per share, versus a net loss of $22.9 million, or $0.58 per share, in the prior year period. Free cash flow declined to $59.1 million from $142.3 million in the corresponding period last year, reflecting lower profitability.

Operational Highlights and Strategic Initiatives

For the quarter ended April 30, 2026, the decline in revenues was primarily attributable to the suspension of flights to Cuba, which resulted in a revenue shortfall of $81.0 million compared with fiscal 2025. Financial compensation from Pratt & Whitney related to Geared Turbofan (GTF) engine issues amounted to $5.2 million, down $14.7 million from the second quarter of fiscal 2025. These headwinds were partially offset by a 3.9% increase in traffic, expressed in revenue-passenger-miles. Network-wide capacity increased by 4.8% compared with fiscal 2025.

Operational challenges included five aircraft grounded due to GTF engine issues, compared to the three initially anticipated, which drove inefficiencies and scheduling variability. New strategic initiatives include expanding European routes to year-round service, introducing a new Montreal-Istanbul route, and strengthening partnerships, such as the joint venture with Porter Airlines. Management indicated that while demand remains strong for European routes, the South market faces challenges due to security issues in Mexico and Jamaica.

Cash Flow and Financial Position

Cash flows related to operating activities generated $118.3 million during the second quarter of fiscal 2026, compared with $207.8 million for the same period last year. As at April 30, 2026, cash and cash equivalents stood at $390.1 million. Long-term debt and deferred government grant totaled $320.0 million as at April 30, 2026, a decrease from $400.0 million as at October 31, 2025. During the six-month period, Transat repaid $50.0 million on its revolving term credit facility and $30.0 million on its subordinated working capital facility.

Government Support and Outlook

Transat intends to apply to the Government of Canada's Liquidity for Airline Sector Resilience (LASR) facility, administered by the Canada Enterprise Emergency Funding Corporation (CEEFC), for up to $150 million in funding. The company stated that drawdowns will be monthly from May to October, with the first draw retroactive to May 1. This facility is designed to help offset the prolonged impact of rising fuel costs resulting from the closure of the Strait of Hormuz.

Looking ahead to the summer period, load factors are 0.6 percentage points lower compared to the same date in fiscal 2025, while airline unit revenues expressed as yield are 0.6% higher. For fiscal year 2026, the Corporation expects a 4% to 5% increase in capacity, measured in available seat-miles, compared to 2025. Management noted that fuel surcharges have not been fully absorbed by customers, affecting pricing power, and average fares for the summer are up 4.5% compared to the previous year.