Air Canada (TSX:AC) Stock: Why Hasn’t it Done Anything Yet?
The Motley Fool
Published Oct 26, 2021 10:30
Updated Oct 26, 2021 10:45
Air Canada (TSX:AC) Stock: Why Hasn’t it Done Anything Yet?
Loyal investors of Air Canada (TSX:AC) remain hopeful that the airline stock can a make a grand comeback. However, it’s beginning to sink in that any rebound by the supposed growth stock won’t happen anytime soon. After presenting the Q2 2021 operating and financial results, Air Canada’s president and CEO Michael Rousseau said the company is turning the corner.
However, the stock’s performance doesn’t show investors’ optimism. The current share price of $22.91 is 36.6% higher than a year ago, although the year-to-gain date is only 0.6%. Meanwhile, market analysts have an average price target of $29.28 in the next 12 months. But given the prevailing uncertainties in the airline industry, the forecasted 29.38% upside potential could be a tall order.
Urgent call to action Willie Walsh, director-general of the International Air Transport Association (IATA), confirmed that international travel remains 70% down on pre-crisis levels. He stressed that government-imposed restrictions hinder the revival of international travel.
The air transport body Walsh represents is urging governments to make real progress towards restoring global air connectivity. IATA directs the new call to the states that were present during the International Civil Aviation Organization (ICAO) High-Level Conference on Covid-19 (HLCC) in early October 2021.
Conference attendees committed to adopting 14 agreed measures to help the revival of aviation. IATA said if states act soon, it will enable airlines to meet the demands of consumers worldwide and revive air travel. The measures cover the implementation and recognition of testing, recovery, and vaccinations certificates.
Moreover, it’s a harmonized multi-layer risk management approach, says IATA. It includes the entry of fully vaccinated and recovered passengers. Another important recommendation is the adoption of the digital IATA Travel Pass to manage travel health credentials. Walsh added, “Airlines cannot afford a restart that is compromised by paper-based processes for checking travel health credentials.”
Rebuild stronger and rise higher On the part of Air Canada, Rousseau said the country’s flag carrier will rebuild stronger and rise higher than ever before. The $8.2 billion airline received debt and equity support from the federal government on April 12, 2021. Still, it wasn’t enough to excite investors.
Instead of rising, the airline stock went on a roller-coaster ride, reaching $28.73 on June 9, 2021. You can also see the weakness from Air Canada’s 50-day ($23.35) and 200-day (25.06%) moving averages. The company continues to burn cash, although management projects it to be lower ($3 to $5 billion per day) in Q3 2021.
Get The App
Air Canada banks on its thriving cargo business to compensate while the passenger travel demand remains below pre-pandemic levels. In Q2 2021, cargo sales increased 33% versus Q2 2020 and twice more compared to 2019. Cargo revenue jumped 53% year over year to $489 million.
Because of the hyper-growth in e-commerce, management expects compound annual growth rates of 4-6%. Likewise, the superb showing of the cargo division prompted a change in the business model. The plan is to operate a pure freighter fleet in tandem with passenger services. In Q4 2021, Air Canada will add two 767 freighters in addition to the all-cargo fleet of eight aircraft.
Extra patience Air Canada’s rebound will come, but investors need to be extra patient. Pent-up demand remains its powerful tailwind, and the implementation of IATA’s 14 measures will help revive air travel.
The post Air Canada (TSX:AC) Stock: Why Hasn’t it Done Anything Yet? appeared first on The Motley Fool Canada.
Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.