SUNWING Travel Group is planning an aggressive push into Europe, hoping to leverage its new-found partnership with U.K.-based TUI Travel PLC to bring as much competition to packaged tours and flights across the Atlantic in the summer as it has to Mexico and the Caribbean in winter.
The news doesn't bode well for tour operators like Transat A.T., which has relied on the strength of its summer routes to Europe to help hedge against the pressure Sunwing and other competitors have put on the profitability of the packaged tours it sells to sun destinations during the winter.
Initially, Sunwing will offer service from Toronto or Montreal to London, Paris, Porto, Lisbon, Rome, and Amsterdam using two leased 767s.
But Stephen Hunter, Sunwing chief executive, said this summer marks only his first salvo in the European market, and that he intends to grow aggressively. Sunwing plans to double capacity next year and continue to grow, adding destinations in Canada and Europe along the way, he said.
"This is the start of our expansion all over Europe," Hunter said.
Sunwing has earned a reputation for being an aggressive competitor in the tour travel market. It has leveraged its more fuel-efficient aircraft, lower cost structure and higher aircraft utilization to undercut the market down south and hopes to do the same across the Atlantic, Hunter said.
Transat has felt the pressure from Sunwing's expansion down south in recent years.
On Thursday, Transat's shares took a hit, falling $4.79, or 28.9 per cent, to close at $11.81 as intense competition on those routes saw it deliver a first-quarter result and outlook that fell short of expectations.
Excluding one-time items, its adjusted after-tax loss was $19.4 million, or 51 cents an adjusted share, compared with a loss of $18.2 million, or 48 cents a share, in 2010. Analysts had been expecting a loss of 23 cents a share, according to Bloomberg estimates.
Jean-Marc Eustache, Transat chief executive, said he wasn't concerned about the company's share price (he said he had spoken to his broker Thursday about possibly buying more shares on the weakness) or about Sunwing entering the European market.
"It's not a lot of flying. It's really a small amount," he said. "We have seen so many competitors on that market. All of them disappeared."
