Air Canada (TSX:AC) stock rose 6.13% to open the week on August 24. Its shares have dropped 65% in 2020. Airlines and the travel industry at large have been battered by the COVID-19 pandemic. Air Canada was riding high coming into this year. However, like its peers, it has been thrown a historical curve ball in the form of this crisis.
Today, I want to discuss how Air Canada got to this point and why it can be a huge source of growth for investors over the next year.
Air Canada stock: Why it crumbled this year
Back in July, I’d discussed whether investors should snag Air Canada stock ahead of its next earnings release. The company released its second quarter 2020 results on July 31.
Total revenue plunged 89% year-over-year due to government-imposed travel restrictions. Air Canada CEO Calin Rovinescu has been critical of the government response in 2020. He has argued for “proportionality” when it comes to drafting policy in response to the COVID-19 outbreak. In July, Air Canada announced that it would move forward without social distancing seating measures.
In Q2 2020, Air Canada reported an operating loss of $1.55 billion. Total passengers fell 96% from the prior year. It finished the quarter with liquidity of $9.12 billion. Air Canada’s improved balance sheet has been crucial in fighting this crisis. During the previous financial crisis, Air Canada stock struggled mightily as the fate of the company appeared to be in doubt.
Airliners are already on the rebound
Warren Buffett made waves in March as he bet on a quick rebound for the airline sector. In less than two months, Buffett opted to withdraw from this position. At the time, I’d suggested that this should not drive investors to lose all faith in this space.
Although seat distancing has been discontinued, Air Canada and its peers will still move into the autumn at a reduced capacity. While there is uncertainty surrounding the spread of COVID-19, it is unlikely that airliners will be able to stage a serious comeback. Still, flyer volumes have gradually improved in the latter half of the summer season.
Air Canada has the liquidity and stability to weather this crisis. Multiple vaccine candidates are passing through Phase 3 Trials. A breakthrough before the end of 2020 could provide the boost that Air Canada stock and its peers desperately need over the course of the next year.
Should you buy Air Canada stock today?
Shares of Air Canada stock last possessed a solid price-to-book value of 2.4. Moreover, investors should not underestimate the high growth potential this company still offers. The September 11, 2001 attacks crippled air travel growth for half a decade. This crisis could be equally as damaging, but the vaccine also represents a fix that would generate immediate peace of mind among consumers. That eluded the industry in the 2000s as anxiety persisted in the face of many new security measures.
Air Canada stock is still trading close to its 52-week low. Now is a great time to stack this Canadian airline giant. It has the potential to make investors fortunes in yet another decade.
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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.