Air Canada (TSX:AC) is an unfortunate example of the saying, “the higher you fly, the harder you fall.” Though in the case of Air Canada, it’s not hubris that brought down its fall; rather, it was a tiny little virus, which crippled economies and brought the airline industry to its knees. Air Canada is just one of the victims of the global phenomenon. But it still has a little fight left.
According to an estimate, the company is still bleeding $20 million every day, and it will continue to do so until air travel normalizes. And an increase in travel doesn’t even need to hit pre-pandemic levels to throw Air Canada a lifeline. Currently, Air Canada is barely operating at 10% of its full capacity, and half of its current fleet is parked.
The current situation
Air Canada, along with the whole tourism industry in the country, is suffering. Even if the government eases restrictions on traveling, internally or globally, it can’t magically take away the fear that people have felt during the pandemic. Air Canada is currently surviving on the cash it raised by diluting shares, since no government bailout seems incoming.
The company has also tried to stop the bleeding by getting rid of half its staff, grounding a major portion of its fleet, and decommissioning old planes. It also delayed its takeover of Trans At for the time being. The company is still standing, but these might as well be its last legs. If the recovery and travel demand doesn’t pick up the pace soon, the company might have to consider even more drastic measures.
As of now, bankruptcy doesn’t seem likely. But that’s highly contingent upon the momentum and pace of normal business recovery. Some external factors, chief among them the second wave of the pandemic, can knock the company out cold. If another wave hits, it will most likely reverse all the momentum and footing the company gained since March.
The stock price
The pessimism about the company is evident in the stock valuation as well. The company poked through the $20 barrier just thrice since March, and never for more than a week. The stock can’t seem to rally, and investors are currently staying their hand. Even if it means losing your chance of stocking up on Air Canada when it’s trading at such a low price, being prudent might be more beneficial in the long run.
Another factor that’s making investors wary is the speed of recovery. The company itself declared that it would take at least three years for operations to reach the pre-pandemic levels, and even then, there is no surety that the stock will follow suit.
It’s hard to say how long will Air Canada stock keep hovering under the $20 valuation. There might be a lot of ups and downs before the stock gains proper traction and starts to rise consistently. If you can wait it out, then Air Canada is a very attractive stock as far as value is concerned.