The Montreal-based company, whose stock sank 8 percent Thursday to a nine-year low, expects tough times to continue through the summer with currency fluctuations more than offsetting a drop in fuel costs.

Transat, which competes with WestJet Airlines' (WJA.TO) WestJet Vacations, Air Canada's (ACb.TO) Air Canada Vacations,

and Sunwing Vacations, said it will cut capacity on its key transatlantic market by 4 percent over the summer, and by 13 percent for its Caribbean and Mexico market.

Laurentian Bank Securities analyst Ben Vendittelli said the results were "very negative" with "no improvement in sight based on management's outlook".

Transat said it is "very difficult" to make forecasts for the second half of the year, due to economic and political uncertainty in Europe and the impact of last-minute bookings on prices.

The company said it estimates that currency fluctuations and fuel prices this summer will result in a C$17 million to C$20 million hit on EBITDA. That is a big change from an estimate of C$30 million more than a month ago, it said, when fuel prices were higher.

"Transat continues to face tough headwinds in Europe owing the economic situation there and a difficult yield environment to sun destinations due to the amount of capacity offered by competitors - chiefly WestJet, Sunwing and Air Canada," said independent airline analyst Robert Kokonis.

"We do not expect these difficulties to change anytime soon ... Transat must diversify its revenue base as soon as possible by looking for non-traditional markets such as Latin America and Asia-Pacific."

Chief Executive Jean-Marc Eustache said the company has recently begun to consider the Asian market and talked to colleagues there, but is not interested in Central America.

FOCUS ON RETURN TO PROFIT

Despite the gloomy outlook and results, Transat said it remains focused on a three-year return-to-profit plan it launched late last year.. Under the plan, in which it laid off 115 employees, it expects to cut annual costs by C$20 million this year.

Cost-cutting efforts got a boost this week when the union representing Air Transat's 1,800 flight attendants agreed to temporarily freeze wages to help the airline.

Members of the Canadian Union of Public Employees voted in favor of a plan to suspend payments of three annual wage increases of 1 percent and the payment of a lump sum of 1.5 percent.

The company, which reached a similar deal with its 420 unionized pilots on May 1, agreed to catch up on salary increases and pay back money owed by December 15, 2015, the union said Wednesday.

Transat also said that it hopes to boost demand by rolling out new vacation packages that include such features as longer stays that can be split between different resorts.

The company, which has also refurbished planes to increase economy seating, said it does not expect to be profitable this year.

INTENSE COMPETITION

Air Transat reported a net loss of C$13.2 million, or 35 Canadian cents a share, for its second quarter, ended April 30. That compares with a profit of C$8.7 million, or 23 Canadian cents a share, a year earlier.

Its adjusted loss widened to 64 Canadian cents a share from a loss of 2 Canadian cents a share last year.

"The weaker than expected results were primarily driven by higher fuel prices and hotel costs combined with intense competition, which led to a decrease in pricing late in the season, during the month of April," Laurentian's Vendittelli said in a note.

Revenue at the company, which also operates in Europe and the Mediterranean basin, rose 10 percent to C$1.2 billion.

North American revenue jumped 13 percent, reflecting the acquisition of Vacances Tours Mont-Royal, which contributed C$69.5 million in revenue. The unit's operating loss of C$19.6 million compares with an operating profit of C$9.8 million in the same period last year.

Operations in Europe, where sales fell 3.7 percent in the quarter, posted an operating loss of C$6.6 million, compared with an operating profit of C$500,000.

The company's class B shares were down 35 Canadian cents to C$4.01 on the Toronto Stock Exchange on Thursday.

(Reporting by Susan Taylor, Nicole Mordant in Vancouver and Shounak Dasgupta in Bangalore; Editing by Maju Samuel; and Peter Galloway)

• A Permanent Economic Emergency