Airlines across the globe are facing the same woes as Air Canada, but relatively fewer are faring as bad. Even airline stocks across the border are recovering better than Air Canada. Out of three major European airlines, only one stock is down as much as Air Canada’s. But this might finally be changing.
Air Canada (TSX:AC) stock showed some life in the past two weeks. From the monthly low on the 18th, the stock has surged about 13%, and it’s currently trading at $18 per share. The 14-day RSI is 61.48, which isn’t too near the overbought territory, but it’s heading there. It’s hard to say whether it’s a temporary reprieve or if the stock is finally rallying for good this time.
This temporary strength that Air Canada stock is projecting is a bit peculiar if you consider the timing.
Extended border restrictions
The border restrictions that were supposed to be lifted by August-end have now been extended, all the way to October. One more month of travel restrictions might not seem that bad to small businesses, but for Air Canada, it’s 30 more days of bleeding cash — a few million every day. September would have been a month for Air Canada’s international travel’s recovery. Now, it’s one more month of scraping by.
Even the people who can come to Canada have to comply with stringent isolation rules. It’s another thing stifling international travel, which is the bread and butter of Air Canada. The company recently announced the initiative to start posting testing booths on airports, so that passengers can be tested before they board. This will be available by September 7, and it’s expected to mitigate Air Canada’s role in spreading the virus.
The company is also facing refund issues and will have to bow down the pressure sooner or later. Too many refund requests can put a severe dent on its already leaking coffers. The liquidity company raised to fight the pandemic-driven circumstances, and a fraction of the usual operational activity will start depleting even faster.
Is it time for a comeback?
Air Canada will release its third-quarter results near the end of October. Many investors might wait till then to tie up their capital to the company, because that will reveal how much the company improved upon the dismal second quarter in similar circumstances. The company will most likely report a huge loss, but investors might feel more confident if it’s below expectations.
That would be a proper time for a comeback, especially if it’s business as usual in October, and Air Canada sees its operational activity slowly rise. If you think that’s how the new couple months will come to pass for Air Canada, then buying now might be beneficial. Because once the company starts recovering rapidly, you may not see valuation below $20 for a long time.
If you believe in Air Canada’s resilience as a company, it might be a good time to buy. But the extended travel restrictions might be more devastating for the company than you think. Waiting for a week or so to see how these restrictions have impacted international travel might be a good idea. If these restrictions bring down the number of passengers currently traveling via Air Canada, the valuation might even go down a bit and offer you an even better price.
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 Adam Othman has no position in any of the stocks mentioned.