Canadian companies are uniting to pilot rapid COVID-19 tests in hopes of reopening workplaces. Beleaguered Air Canada (TSX:AC) is part of the consortium as it hangs by a thread due to the pandemic. University of Toronto’s Creative Destruction Lab runs the experimental antigen tests with 12 companies as partners.
Air Canada, Rogers Communications, Suncor Energy began testing already along with Maple Leaf Sports and Entertainment. The companies that will start testing soon are the Bank of Nova Scotia, Loblaw, Magna International, Nutrien Ltd, Shoppers Drug Mart, MDA Corp., and Canada Pension Plan Investments.
The airline stock rose to $27.34 on December 8, 2020, only to close 20.7% lower to $21.67 on February 8, 2021. Thus far, the year-to-date loss is 4.83%. The spread of new, more contagious variants of coronavirus forces the government’s hand to tighten rules to discourage international travel.
If the rapid COVID-19 tests prove successful, could it lift Air Canada from economic carnage and propel the stock to rally?
Flight suspensions and job cuts
Upon the request of the Canadian government, Air Canada Rouge paused its operations on February 8, 2021 until further notice. Because of the government-imposed travel ban to Mexico and the Caribbean, the company temporarily laid off 80 employees. The Trudeau administration has more stringent new restrictions to clamp-down on the new COVID-19 strains.
Nearly five weeks ago, Air Canada made a job-cut announcement. About 1,700 workers lost jobs after the airline reduced its capacity by 25%. According to Air Canada Executive Vice-President Lucie Guillemette, the enhanced travel rules implemented on January 7, 2021 had an immediate impact on bookings.
Support package or bailout?
Airline companies point to unclear rules and the lack of federal support as reasons for the dramatic reduction in service. WestJet CEO Edward Sims blames the government’s incoherent policy for its staff and flight cuts. There are discussions about an industry-specific support package. However, nothing is definite as it’s contingent on carriers, including Air Canada, to provide refunds to passengers due to flight cancellations.
It’s become a chicken and egg situation. Air Canada’s Managing Director for Government and Community Relations David Rheault said the company would not issue passenger refunds unless it receives a government bailout. Data from International Air Transport Association (IATA) shows that global airlines received about US$160 billion in aid from their respective governments.
Stock in limbo
Air Canada has yet to report its Q4 and full-year 2020 financial results. The $7.21 billion airline company is hurting and bleeding. Management said net cash burn in Q4 2020 would be between $1.1 billion and $1.3 billion, which translates to about $12 million to $14 million daily average. It includes $4 million in capital expenditures and $5 million in lease and debt service costs daily.
The start of 2021 isn’t encouraging for the airline stock that lost 53% in 2020. It might take more than the rapid COVID-19 tests’ success for airline stock to recover and fly high again. Only a federal aid package could save the ailing aviation industry. Air Canada and the government must agree on the terms of the sector-specific support first. Also, passenger travel demand might not return to pre-corona levels soon.
