Just because Air Canada (TSX:AC) isn’t Warren Buffett’s cup of tea doesn’t mean it also shouldn’t be yours, especially if you’re a fearless youngster with a long time horizon and an appetite for big gains. The once highly-profitable airlines are finding themselves in a fight for their lives amid this horrific crisis. Many airlines will go under at the hands of the insidious novel coronavirus, but Air Canada, I believe, will not be one of them.
Why? Air Canada has a pretty decent liquidity position, which, I think, buys it more than enough time to wait for the advent of a safe and effective vaccine that can conquer COVID-19. Most health experts would agree that we’re about a year or so away from such a vaccine that’s readily available for broad distribution.
Air Canada remains a high-upside speculative bet
Indeed, Air Canada seems like an all-or-nothing bet on the timely advent of a vaccine. And when it comes to vaccines, the keyword is “safe and effective,” as not all vaccine candidates can be both safe and effective, as top doctor Dr. Anthony Fauci pointed out in an effort to reinforce realistic expectations. As we witnessed this week, with two major vaccine trails getting paused over their questionable safety, we must remember that vaccine production takes years, even under the most optimistic of circumstances.
A new kind of catalyst on the horizon for the airlines?
Until recently, Air Canada and its peers in the air travel industry have been intriguing speculations at best and reckless gambles at the worst. With rapid-testing technologies on the horizon (Air Canada recently ordered a big batch), the airlines could take to the skies again well before this pandemic ends.
While traveller sentiment is unlikely to return to 2019 levels anytime soon as a result of effective rapid-testing kits, such kits could provide the airlines with substantial financial relief and more time to wait for the arrival of a vaccine.
If such rapid test kits work out, there’s no question that Air Canada is no longer just a hefty government bailout just waiting to happen. It appears more like a business that can weather a worsening storm under its own power.
While Air Canada’s liquidity raises, capacity cuts and down trending cash burn rates bode well for the airline’s survival prospects; I’m not so sure the firm can borrow its way out of this crisis if we are due for another year or two worth of outbreaks and intermittent government-mandated shutdowns and travel restrictions.
With rapid test kits and other innovations that can help ease the pains amid this crisis, I think Air Canada became a more enticing, albeit a still highly-speculative bet. With shares of Air Canada on the retreat again over surging COVID-19 cases in various parts of the country, I think investors are discounting the financial relief potential of rapid test kits and would encourage fearless young investors to scale into a small position here, at $15 and change, as they look to add more on any further weakness.
With dire coronavirus news flooding the headlines once again, Air Canada stock could have another leg lower before it has a chance to sustain a rally higher.
Foolish takeaway on Air Canada
If you’re optimistic about a return to normalcy and have an otherwise well-balanced barbell portfolio that mitigates COVID-19 risks, it makes sense to nibble away at Air Canada, even though Warren Buffett is clearly no fan of the airlines amid this pandemic.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned.