Grounded planes weigh on Transat growth plans, after strike fears erode earnings

Christopher Reynolds, The Canadian Press

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Transat A.T. Inc. has reined in summer growth plans as grounded planes continue to weigh on profit margins — after fears of a strike ate away at bookings last quarter, yielding a net loss, its CEO said.

"The persisting speculation of a strike by flight attendants starting last November clearly affected bookings and yield for the winter season," said chief executive Annick Guérard.

The Montreal-based tour operator's 2,100 flight attendants voted 99 per cent in favour of a strike mandate that month and twice rejected tentative deals before approving a new collective agreement in late February.

Guérard said bookings fell after the right-to-strike vote and the two deal rejections, and shot up again following each announcement of a tentative agreement — "so overall a clear correlation."

As a consequence, Air Transat's seat capacity ramp-up of 25 per cent in its first quarter exceeded its passenger increase of 20 per cent, resulting in slightly emptier planes en route to sun destinations.

Air Transat is also among the carriers facing serious knock-on effects from the recall of Pratt & Whitney turbofan jet engines for inspection and repair.

The cost of temporary plane leases prompted by those engine issues coupled with "heightened consumer price sensitivity ... as well as fierce competition" in the Toronto market put further pressure on profit margins, Guérard said.

Last year, Pratt & Whitney parent RTX Corp. said it would recall about 3,000 engines because parts were made with contaminated powdered metal that could cause cracking. Air Transat has grounded four jetliners as a result, and expects to remove one or two more from the skies before the year is out — 15 per cent of its 40-plane fleet.

The company has secured three Airbus A330 widebody aircraft leases to compensate, but they don't come cheap.

"Due to the operating challenges caused by the Pratt & Whitney engine situation as well as the problems affecting the Boeing 737 Max 9" — highlighted by the midflight blowout of a side panel in January — "a great number of carriers are looking for aircraft," Guérard noted.

"These issues combined with an already stressed supply chain are putting important pressures on the availability and the cost of aircraft leasing."

The tour operator's share price was down 34 cents or more than eight per cent to $3.90 by midday Thursday.

The grounded planes and high price tags on fresh leases drove the CEO's decision to scale back growth plans. Instead of bolstering seat capacity by 19 per cent this year, she opted instead for a more modest 13 per cent increase and scrapped some domestic and Canada-U.S. routes as a result.

"We have cancelled routes because of lack of aircraft," Guérard told analysts on a conference call. "We want to be cautious and make sure that we don't take too much risk for the upcoming year."

The company swung to a loss of $61 million in the three months ended Jan. 31, worse than the $56.6-million loss of the same period a year earlier. Transat has cleared a profit only twice in the past 17 quarters.

Revenue rose 18 per cent to $785.5 million in its first quarter from $667.5 million a year prior, the travel company said.

On an adjusted basis, Transat lost $2.11 per share compared with an adjusted loss of $1.62 per share a year ago. The result fell well below analysts' expectations of an adjusted loss of $1.22 per share, according to financial markets data firm Refinitiv.

This report by The Canadian Press was first published March 14, 2023.

Apple buys Canadian AI startup as part of race to add features

Mark Gurman, Bloomberg News

Apple Inc. has acquired Canadian artificial intelligence startup DarwinAI, adding technology to its arsenal ahead of a big push into generative AI in 2024.

The iPhone maker purchased the business earlier this year, and dozens of DarwinAI’s employees have joined Apple’s artificial intelligence division, according to people with knowledge of the matter, who asked not to be identified because the deal hasn’t been announced. 

DarwinAI has developed AI technology for visually inspecting components during the manufacturing process and serves customers in a range of industries. But one of its core technologies is making artificial intelligence systems smaller and faster. That work that could be helpful to Apple, which is focused on running AI on devices rather than entirely in the cloud.

Alexander Wong, an AI researcher at the University of Waterloo who helped build the business, has joined Apple as a director in its AI group as part of the deal.

In response to questions about the deal, Cupertino, California-based Apple said it “buys smaller technology companies from time to time” but doesn’t discuss its plans.  

Waterloo, Ontario-based DarwinAI had raised more than US$15 million as of 2022, according to the Canadian startup community Communitech. It received investments from Honeywell Ventures and Inovia Capital, among other venture capital firms. The startup also has worked with companies like Lockheed Martin Corp. and Intel Corp., according to Communitech. 

The under-the-radar acquisition comes ahead of a big AI push for Apple this year. The company is adding features to its iOS 18 software that rely on generative AI, the technology behind ChatGPT and other groundbreaking tools. Chief Executive Officer Tim Cook has promised that Apple will “break new ground” in AI this year, and an announcement is expected as soon as the company’s worldwide developers conference in June.

Despite having acquired more AI companies than most rivals over the past decade, Apple has fallen behind in the generative AI market. It was caught flat-footed by the launch of OpenAI’s ChatGPT in 2022, and tech peers like Google and Microsoft Corp. have stolen the spotlight with new features.

Internally, Apple has started integrating generative AI into its operations, using the technology to assist with customer service requests. It’s also planning to add features to its software for auto-creating presentations and completing blocks of texts. And Apple is working on a new version of its Xcode programming software that uses AI to help developers write code.

 

Oil shippers demand explanation from Trans Mountain for pipeline cost overruns

Amanda Stephenson, The Canadian Press

A group of oil shippers is asking the Canada Energy Regulator to compel the company behind the Trans Mountain pipeline expansion to provide them with a full and detailed breakdown of the project's escalating construction costs.

The shippers — which includes Canadian Natural Resources Ltd., Suncor Energy Inc.,, Cenovus Energy Inc., PetroChina Canada Ltd. and Marathon Petroleum Canada — are seeking an order from the regulator requiring Trans Mountain Corp. to provide more information about why the project's costs have ballooned to more than $30 billion from a 2017 estimate of $7.4 billion.  

"The stakes are high: billions of dollars at issue, with Trans Mountain's (costs) having more than quintupled since 2017 — and its costs are still growing by billions, seemingly unchecked," the oil companies stated in a motion filed with the Canada Energy Regulator earlier this week.

"Yet Trans Mountain refused to answer most of participating shippers' (request for information) and inappropriately dismissed most requests as irrelevant 'fishing expeditions.' "

The Trans Mountain pipeline, which was bought by the federal government in 2018, is Canada's only oil pipeline to the West Coast. Its nearly complete expansion project will increase the pipeline's capacity by 590,000 barrels per day to a total of 890,000 barrels per day, improving access to export markets for Canadian oil companies.

But Trans Mountain Corp. and its oil company customers are currently engaged in a dispute over tolls, the term for the fees the pipeline company will charge to ship oil on the expanded pipeline.

In its most recent update provided last month, Trans Mountain said it now has reason to believe the costs of the project will come in approximately $3.1 billion higher than the $30.9 billion estimate in May 2023. It said a final tally won't be available until after the project's completion, expected sometime this spring.

Oil companies are concerned with the escalating costs because they will have to pay for a portion of them in the form of rising tolls.

While approximately 70 per cent of the project's cost overruns will be borne by Trans Mountain, the remaining third — more than $9 billion — is considered "uncapped costs" which increase tolls in accordance with a formula agreed to by shippers and approved by the regulator more than a decade ago.

But the oil shippers say the new benchmark toll Trans Mountain wishes to charge is nearly twice the amount of a 2017 estimate, and say more information must be provided in order to prove the rising price tag of the project is both reasonable and necessary.

They say they have asked Trans Mountain to provide a more detailed breakdown, and are seeking an order from the regulator because they aren't satisfied with the company's response.

The Canada Energy Regulator has already granted approval for Trans Mountain to charge the higher toll on an interim basis, but is yet to make a final decision.

For its part, Trans Mountain Corp. — which is a Crown corporation — has said 70 per cent of the project's cost overruns will be borne by the pipeline company and will have no effect on tolls.

The company has also previously stated that because of the project's cost overruns, it expects only "modest returns" on its investment in the first few years of the expanded pipeline's operation. It says that any toll level below what Trans Mountain has applied for "could impact Trans Mountain's ability to meet its financial obligations."

In December, Trans Mountain Corp. submitted written evidence to the regulator in which it said the pipeline expansion project has been affected by "extraordinary" factors that include evolving compliance requirements, Indigenous accommodations, stakeholder engagement and compensation requirements, extreme weather and the COVID-19 pandemic.

The company said in its filing that the project's cost overruns were "reasonably and justifiably incurred."

Construction on the Trans Mountain pipeline expansion project began in 2019.

This report by The Canadian Press was first published March 14, 2024.

 

Home Depot to open new Greater Toronto distribution centre catering to pros

Tara Deschamps, The Canadian Press

The Home Depot is opening a new distribution centre in the Greater Toronto Area that will help the company cater to its biggest customers.

The home improvement retailer announced the centre Thursday, saying it will open in the first half of the year in Mississauga, near the Pearson airport. 

The facility will target "pro customers" — homebuilders, contractors, remodellers and others who often work on bigger, more complex projects and need large quantities of materials.

Serving these kinds of customers through its retail stores has at times been "not optimal," said Michael Rowe, president of The Home Depot Canada. 

"You may not have all the volume necessary to satisfy their order and so we would cobble together product from other stores or sometimes we just couldn't say yes to that order," he said.

When the Home Depot could handle such orders, the merchandise these customers were seeking was often so large or the quantity they needed so high, store staff would often need to fetch products from atop the chain's mammoth storage units.

"You're having to block off the aisle, so it's not the greatest customer experience," he said.

The Home Depot is betting that its new centre — and three others coming in Detroit, southern Los Angeles and San Antonio — will dramatically change that experience.

The centres will reduce much of the scramble to fulfil large orders and even allow the company to stock additional products that were too large to fit into stores.

"Pros need often 20-foot, 24-foot, 28-foot pieces of lumber, we just don't have the space and ability inside of our store to carry that," Rowe said.

Now, it can be ordered specifically for that professional. The company hopes to supply such special orders along with any other materials needed for a job, keeping customers from having to drive around to lumber yards, plumbing suppliers and electrical shops to get all their supplies.

Through the new centre, customers will be able to request their orders be shipped on flatbed trucks directly to job sites, reducing store congestion.

The facility will be about 600,000 square feet, Rowe said, with half dedicated to the flatbed delivery centre and the other half serving as a "big and bulky" distribution centre that can handle large items like lumber, insulation and roofing shingles.

About 20 workers have started at the centre already but the team is expected to hit 30 in the coming weeks.

Rowe considers the centre part of the Home Depot's "third chapter." The first, he said, catered to do-it-yourself customers and the second started to look at how to make things more convenient for pros.

The third chapter digs further into that professional side of the business, targeting planned purchases that big customers know they will need to make weeks and even months in advance 

"Those purchases can be quite significant orders that are $10,000, $20,000, $50,000," he said.

Reaping the rewards of the push toward pro will not come easy, TD Cowen analyst Max Rakhlenko suggested in a March 3 note to investors discussing his take-aways from a recent homebuilders conference in Las Vegas.

The company will have to scale its order management system and break through "entrenched" relationships between pros and independents.

"There was healthy skepticism that (Home Depot) could crack the complex pro market," he said in the note to investors.

"But reps acknowledged that if anyone could do it, it would be the Home Depot given their access to capital, relationships, IT, and already working with these pros in a smaller capacity."

This report by The Canadian Press was first published March 14, 2024.

 

B.C. First Nation and Western LNG partner to purchase natural gas pipeline project

The Canadian Press

A B.C. First Nation and a Houston-based firm are buying a ready-to-construct pipeline project that would supply a proposed floating LNG export terminal north of Prince Rupert.

The Nisga’a Nation — whose lands are located on the northwest coast of B.C. near the city of Terrace — and its partner, Texas-based Western LNG, announced Thursday they will be acquiring the Prince Rupert Gas Transmission project from Calgary-based TC Energy Corp. 

Financial details of the transaction were not disclosed, but TC Energy said in a news release that initial proceeds from the transaction will not be material. Instead, the company said it has the potential to receive additional payments contingent upon the pipeline getting built and beginning operation.

“Today is a historic day for the Nisga’a Nation and represents a sea change in major industrial development in this country,” said Eva Clayton, President of the Nisga’a Lisims government, in a news release.

“In taking an equal ownership role in this pipeline, we are signalling a new era for Indigenous participation in the Canadian economy."

The Prince Rupert Gas Transmission project is a permitted and ready-to-build 900-km natural gas pipeline that would run from Hudson’s Hope to Lelu Island, near Prince Rupert. 

It is the same proposed pipeline that was meant to supply the Pacific NorthWest liquefied natural gas facility, a $36-billion project that was spearheaded by Malaysian energy giant Petronas but scrapped in 2017 due to falling LNG prices and other factors.

Pacific NorthWest had already been approved by the federal government. But its cancellation meant that the shovel-ready pipeline never got built. 

The Nisga'a Nation and Western LNG have since proposed their own project, the Ksi Lisims LNG project, which they say would be a floating production facility capable of producing 12 million tonnes per year of liquefied natural gas off of B.C.'s northwest coast.

The partners have not yet made a final investment decision on whether to go ahead with the terminal, which is in the early stages of consultations and hasn't received regulatory approval yet. 

But the purchase of the Prince Rupert pipeline project means Ksi Lisims now has an advanced-stage piece of natural gas supply infrastructure.

“We want to acknowledge TC Energy’s efforts developing the project to this point,” said Davis Thames, CEO of Western LNG. 

"(The project) is fully engineered, permitted and ready to construct ... We will move this critical project forward with renewed momentum and a fresh perspective."

Canada's LNG industry has been slow to take off, especially compared to the U.S., which already has seven LNG terminals in operation, making it the largest LNG exporter in the world. 

But the massive Shell-led LNG Canada facility being built near Kitimat is nearing completion, giving Canada its first opportunity to ship domestically produced natural gas in the form of LNG to customers in global markets from this country's own shores.

Two other facilities, Cedar LNG and Woodfibre LNG, have also been proposed.

Proponents of a Canadian LNG industry say liquefied natural gas from Canada could help reduce global greenhouse gas emissions by replacing coal in countries that still rely on the dirtier fuel.

But environmentalists argue that LNG creates its own emissions through the liquefaction and transportation process, as well as through the drilling and flaring of natural gas in Western Canada.

Last month, the Gitanyow Hereditary Chiefs of B.C. challenged Ksi Lisims LNG to prove its greenhouse gas reduction promises and urged the British Columbia Environmental Assessment Office to halt the project's review. 

The Nisga’a Nation and Western LNG said they intend to enter into an agreement soon with a construction manager to build the pipeline. The companies said they anticipate being able to contract with many of the same companies that have worked on other recent pipeline projects in B.C., including the now-complete Coastal GasLink and the almost-complete Trans Mountain pipeline expansion.

This report by The Canadian Press was first published March 14, 2024.