Shares of the Canadian flag carrier Air Canada (TSX:AC) are soaring. The stock has risen by 62% this month so far as of November 26. After multiple pharmaceutical companies released positive news related to their COVID-19 vaccine development and testing, it triggered a buying spree in the airline stocks across North America.
But is it the end of challenges for Air Canada? It’s a question worth considering if we don’t want to regret the coming months. If we pay attention to Microsoft founder Bill Gates’s recent claims about business travel, the airline industry — including Air Canada — might continue to face troubles for years.
Air Canada’s challenges
The largest Canadian airline started 2020 on a disastrous note as its stock tanked by 67.5% in the first quarter. The coronavirus started taking a toll on investors’ sentiments worldwide, leading to a big market crash. Investors from hospitality, travel, and consumer discretionary products industries suffered the most.
These financial challenges were also reflected in Air Canada’s first-quarter results as the airline reported its first quarterly loss after reporting profits in the previous seven quarters in a row. The company reported an adjusted loss of $ 1.49 per share in the first quarter — missing Bay Street estimates of $1.22 loss per share. However, the company’s revenue only fell by 16.4% year-over-year (YoY) to $3.7 billion during the quarter.
However, the toughest phase of the ongoing pandemic crisis was yet to come for the airline. In the second quarter, Air Canada’s revenue crashed by 89% to just $527 million. As a result, the airline lost around $1.1 billion during the quarter.
Has anything significant changed lately?
Air Canada’s miseries continued in the third quarter as well. Its per-share loss in Q3 widened beyond analysts’ expectations. The airline reported an adjusted net loss of $4.30 per share in the third quarter — once again missing analysts’ consensus estimates by 66%. Its revenue saw over 85% YoY decline for the second quarter in a row.
Continued COVID-19 related restrictions on air travel — especially on international travel — are still in place in many countries across the world. There haven’t been any concrete fundamental changes to celebrate for airline investors lately. But still, investors’ raised hopes after the positive news about the pandemic-related vaccines drove Air Canada stock higher this month.
Bill Gates’ recent claims about business travel
Even if we suppose everything goes right with the timeline of COVID-19 vaccines hitting the market despite all the supply chain complexities, it wouldn’t suddenly act as a miracle for the airline industry. It may take a couple of years for business travel across the globe to return to normal — if it does return to normal.
Some experts predict that in the post-COVID world, business travel might get reduced by 50%. For example, Bill Gates — in a recent interview — made a similar claim.
What can we do?
In case I already owned Air Canada’s stock with a long-term goal in mind, I might continue to hold its stock. However, I wouldn’t want to invest my hard-earned money in it right now — just because the stock has fallen a lot lately — and I expect a recovery.
I would definitely want to optimistic about Air Canada’s stock when I see some significant signs of recovery in its financials. However, I don’t see any such sign at the moment.
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