Investors: Air Canada Is Flying High on Q3 Results

Air Canada (TSX:AC) reported better-than-expected results for the third quarter, signaling that the company turnaround is nearly complete.

| More on:
The Motley Fool

Air Canada (TSX:AC) is a much-improved company over what it once was, and it continues to improve with each and every quarter. A few years ago the largest airline in the country was unrecognizable from the company it has become in almost every respect.

Air Canada reported quarterly results on November 5, and once again the results were record breaking. Let’s take a look at some of the highlights and what this means for investors.

Third-quarter results

Air Canada reported revenues of $4.05 billion, which was an improvement over the $3.95 billion that was expected.

Adjusted net income came in at $734 million, or $2.50 per diluted share, compared with $1.55 per diluted share on $457 million in the same quarter last year. Operating margins were 20.3%, reflecting an improvement of 6.5% over the same quarter last year.

Earnings before interest, taxes, depreciation, amortization and aircraft rent increased by over 40% to $1.08 billion, with the margin increasing to 26.7%

A major contributor to the stellar results was the significant drop in fuel prices that resulted in operational cost savings for the airline, even offsetting other factors such as the weakened Canadian dollar. This is in line with the company’s strategy to reduce costs across the airline over the next few years.

How Air Canada will reduce costs and still expand

Air Canada’s cost-reduction strategy is twofold.

It will keep focus on the expansion of the low-cost Rouge unit, which add capacity to the international segment. It will also continue the ongoing fleet renewal by replacing older planes with newer Boeing 787 Dreamliners, which burn significantly less fuel than the planes they are replacing. As capacity grows and new planes enter service, this can be seen as a win-win scenario for the company.

One important factor that was echoed by CEO Calin Rovinescu was that the initiative is not taking into consideration long-term low fuel prices; rather it is assumed that fuel prices will increase in key markets.

The company is steadily adding new routes, particularly in the more lucrative international market, where the airline excels. Three weekly non-stop flights to Dubai commenced just this week using 787 Dreamliners.

Air Canada currently trades at $11.57, below the 52-week high of $15.09. Over the past month the stock is up 5.66%, and over the course of the full year, Air Canada is up by 24%. Long-term investors will be particularly pleased with the five-year price difference, which is an impressive 205%.

Based on the impressive quarter that Air Canada had as well as the commitment to expand into new markets, Air Canada remains a great option for investors. With analysts issuing a price target that is upwards of $17, and savings and revenues slated to grow in the coming quarters, Air Canada remains a solid addition to any portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

More on Investing

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »