It seemed as though all was lost for Air Canada (TSX:AC) recently. After reaching all-time highs back in February, Air Canada stock fell to lows not seen in years due to the pandemic. Since then, shares have remained at less than a third of previous highs; that is, until recently.
With news that a vaccine is seeing huge promise, this could mean air transportation could be up and running once more. This news sent shares flying about 35% as of writing, where Air Canada stock has now stabilized.
Yet there are some that think this could only be the beginning, and we could soon see the company lift off to heights higher than ever before.
Not only the vaccine
The biggest problem that many investors have had with Air Canada stock is its debt load. The company already took on serious debt before the pandemic and economic downturn. It invested in a new fleet of airplanes, along with the Aeroplan program, and reinvigorating its flight paths.
Then the pandemic hit, and debt climbed higher and higher, while planes remained grounded. Even with some planes in the air, the company is nowhere near where it was before the pandemic. Yet it’s not all bad news. First, of course, there’s the vaccine. However, there’s more good news likely on the way.
Air Canada stock could soar even higher when the government announces a very likely bailout. It wouldn’t be surprising, as the government has bailed out airlines before. In fact, Air Canada has now delayed any more route cuts until the government bailout talks have concluded.
Soaring into 2021
This year has been terrible for Air Canada stock, but next year could be the polar opposite. A bailout could bring the company’s total debt of $10 billion down to around $7 billion, where it was before the market crash. From there, the company can rely on its investments to keep debt coming down.
And all those investments I was talking about? The main goal was to thin out operations. The new airplanes are fuel efficient. The new flight paths are more efficient. Aeroplan will bring in more cash. Finally, the company will soon control about 60% of the industry. All of these points bode well for the future of Air Canada stock.
Meanwhile, investors should see this as the opportunity that may not come again. The company almost bottomed out at under $1 per share back in 2012. However, today it’s worth 20 times that amount! In the last five years, returns have been around 70%, with a compound annual growth rate (CAGR) of about 19% in the last decade. Those are some serious returns.
Bottom line
With a vaccine on the way, a bailout on the table, more travelers at home and abroad, and people becoming comfortable with the new norm, Air Canada doesn’t have any further to drop. Investors willing to buy low and hold onto this stock could see very similar share movement in the near future. If we see a further increase to pre-crash levels, you could turn a $5,000 investment into $12,500 by the end of next year!
