Air Canada (TSX:AC) is a company that needs no introduction. The company is the largest airline passenger carrier in Canada. According to its website, Air Canada and its subsidiaries carried over 51 million passengers to nearly 220 destinations in six continents in 2019. That year, the company was also named the Best Airline in North America by Skytrax.
Unfortunately, the COVID pandemic has hit the travel industry hard, and Air Canada is no exception. Amid the issues, Air Canada stock may be ready for a rebound. Is it time to start buying into this company?
The issues caused by the pandemic
The travel industry has been one of the hardest-hit markets during the pandemic. As the number of active cases shot up, countries imposed travel restrictions. For much of this year, cross-border leisure trips were not allowed in many parts of the world. This caused many travel stocks to fall immensely. At its lowest, Air Canada stock was valued at $9.26. This represents about an 80% decline from its highest levels pre-COVID. Air Canada stock had not been valued that low since 2016.
Financially, the effects of the COVID-19 pandemic have been significant. Air Canada needed to lay off 20,000 workers in May. The reasons for these lay offs are illustrated in the company’s past earnings reports.
In Q2, Air Canada reported that it experienced a 96% year-over-year decline in total passengers carried. The results were marginally better in Q3, with the company reporting an 88% year-over-year decline in the same metric. However, Air Canada went on to state that it still lost about $9 million per day during that quarter.
Is it time to buy Air Canada stock?
Before the pandemic, I was seriously considering a position in Air Canada. Its firm placement within the Canadian airline industry is undeniable. The company operates 167 aircraft, excluding those operated by its subsidiaries. It is estimated that Air Canada operates an average of 1,613 scheduled flights everyday.
However, I have been very critical about purchasing shares in the company ever since the pandemic. One reason, aside from the obvious uncertainty in the travel industry, is the razor-thin operating margins present in airline companies. I feel that the companies that are most likely to come out of the pandemic in the best condition are those that can maintain a healthy cash position on its balance sheet.
With the anticipation of COVID vaccine distributions on the horizon, travel stocks have seen a great rebound. Over the past month and a half, Air Canada stock has gained as much as 86%. Investors that have been able to catch that dip should be very happy. On December 8, Air Canada also announced a partnership with Uplift, which will allow passengers to use pay-over-time booking options. This will certainly help to continue pushing Air Canada stock higher.
However, COVID cases continue to rise and provinces are re-instating heavy restrictions. On Tuesday, Alberta announced major closures and a new province-wide mask mandate. In addition, it is yet to be determined how the increased passenger load, during the Christmas season, will affect the number of active COVID cases. Indeed, there are still many questions to be answered.
Air Canada is one of the most watched and traded stocks in Canada. It has been hit significantly as a result of the COVID-19 pandemic. However, with the anticipation of a vaccine distribution in the near future, and a promising partnership with Upshift, Air Canada stock has rallied greatly. I think it would be wise to wait until the end of the Christmas season to see how the travel industry fares before jumping into the company. A lot of uncertainty remains, and COVID may not be done quite yet.
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 Jed Lloren has no position in any of the stocks mentioned.