In January, shares of Air Canada (TSX:AC) dropped below $20. Since the beginning of February however, the stock has rallied to $23.56 as of this writing.
Can this rally continue?
Government expected to provide relief for airlines
Despite the company reporting its largest annual loss in almost two decades, Air Canada is confident the Canadian government will provide some financial relief to the airline industry. This industry has been reeling since the COVID-19 pandemic began over a year ago.
Jerry Dias, president of the Unifor private sector trade union, claimed relief funds from the government were “imminent.” In a recent phone interview, Dias said, “I’ve been speaking to the federal government, as well as Calin Rovinescu (Air Canada’s CEO) and everybody, and there’s no question, it’s imminent,” referring to the relief funds and without providing further details.
According to the Canadian government, any financial package to the airlines must include the airlines’ commitment to passenger refunds and the restoration of regional routes.
Even though Canadians are longing to escape the harsh winter, the government has implemented strict quarantine procedures for anyone returning to the country. In January, air carriers agreed to suspend winter travel to certain popular spring break destinations through the end of April 30. The restrictions were imposed in the hopes of containing new strains of the coronavirus that could easily spread by travelers returning to Canada.
Once the vaccine is more readily available and the spring break travel period has passed, Air Canada expects the situation to improve. Canada has some of the most stringent COVID-19 quarantine rules, with isolation times much longer than other countries and greater than recommendations by the Center for Disease Control (CDC).
CEO Rovinescu told analysts he expects an “improved dynamic” around the end of April. Rovinescu anticipates that the strict quarantine rules facing returning travelers will be eased, with COVID-19 testing replacing some quarantines.
Effective February 15, Rovinescu was expected to retire and be replaced by Michael Rousseau, formerly Air Canada’s CFO.
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Bleak annual results
In reporting last week’s financial results, Rovinescu said, “With today’s release of 2020 fourth quarter and full year results, we close the book on the bleakest year in the history of commercial aviation, after having reported several years of record results and record growth at Air Canada.” He continued, “The catastrophic impact of COVID-19 and government-imposed travel restrictions and quarantines has been felt across our entire network, deeply affecting all of our stakeholders. It has resulted in a 73 per cent decline in passengers carried at Air Canada during the year and an operating loss of nearly $3.8 billion.”
For the year just ended, Air Canada’s total revenues of $5.833 billion declined $13.298 billion (70 %) from 2019. The company reported an operating loss of $3.776 billion compared to operating income of $1.650 billion in 2019.
Air Canada’s unrestricted liquidity amounted to $8.013 billion on December 31, 2020.
Latest news boosts Air Canada stock
In the latest news since the earnings release, Air Canada has reportedly refused to extend the deadline for its $188.7 million takeover of Canadian tour operator Transat A.T. Inc. The deadline for the extension was February 15, but after European regulators failed to give their approval, the deadline passed.
Immediately after this news broke, shares of Transat tumbled 8%, while Air Canada added to its rally by 3.5%.
The bottom line
If Rovinescu is correct and the air travel restrictions are lifted in the next few months, shares of Air Canada should continue their rally. And any news of monetary relief from the government should only propel the stock further.
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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 Cindy Dye has no position in any of the stocks mentioned.