Is the slump of Air Canada (TSX:AC) in the stock market over? Loyal investors in the ailing airline company note the building momentum of late. On October 15, 2020, the shares were trading at $15.52 apiece. However, as of December 4, 2020, the stock price is $27.50, a staggering climb of 77% in 50 days.
The uptrend in recent weeks is a positive sign for people waiting for Air Canada’s rebound. Unfortunately, the industry forecast for 2021 isn’t bright yet. This slump is likely to extend as the health crisis continues.
According to the International Air Transport Association (IATA) press release dated October 27, 2020, the fourth quarter of 2020 is going to be difficult for the airline industry. The association expects 2020 traffic to be 66% less than the 2019 level. For December 2020, traffic will be down by 68% year on year.
IATA’s director general and CEO, Alexandre de Juniac, said, “There is little indication the first half of 2021 will be significantly better, so long as borders remain closed and arrival quarantines remain in place.” Catching up with shrunken revenues is also a major concern.
Without additional government financial relief, median airlines have about eight-and-a-half months of cash left at current burn rates. Most companies can’t cut costs fast enough. Regarding total industry revenues in 2021, IATA expects a 46% decline compared with the $838 billion in 2019.
Soaring despite dismal earnings
Air Canada shares are soaring, despite the dismal Q3 2020 earnings report. Total revenue during the quarter was $757 million, an 86% drop from the $4.7 billion in Q3 2019. Its operating loss was $785 million compared to the $956 operating income in the same period last year. As of September 30, 2020, unrestricted liquidity stands at $8.189 billion.
Health and safety policies and procedures are in place for travellers and employees in all workplaces, airports, and onboard aircraft. However, the Canadian government has identified 12 Toronto flights, international and domestic, with confirmed COVID-19 cases in late November.
To comply with the new international travel requirement, Air Canada is collaborating with Shoppers Drug Mart. Passengers can take a pre-departure COVID-19 RT-PCR test. Many countries now require such tests, and eligible Air Canada customers can book and purchase a COVID-19 test at the pharmacy retailer’s participating locations.
The 14-day quarantine period from the date of arrival in Canada is still mandatory, whether a passenger has symptoms or not. Likewise, Canadian travel restrictions will continue until January 21, 2021. The country’s border will remain closed to foreign nationals flying in for non-essential reasons.
Since passenger travel is unlikely to return soon, Air Canada looks to grow its cargo business to overcome the COVID-19 challenges. The company and pilots ratified changes to their contract to help the airline competitively operate dedicated cargo aircraft.
Air Canada has been operating up to 100 international, all-cargo flights weekly. The company is recalling its retired Boeing 767-300ER aircraft for passenger service and converting a number of them to all-freighter aircraft. Making income in other ways is important.
Invest with caution
Airline stocks are risky investments today. The industry outlook remains bleak. Invest with caution and be patient if you think Air Canada is still worthy of consideration.
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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 Christopher Liew has no position in any of the stocks mentioned.