Air Canada Stock: Should You Brace Yourself for a Drop?

Air Canada (TSX:AC) stock has been a turbulent ride, but should investors punch their ticket, as the country winds down from its third COVID-19 wave?

| More on:
An airplace on a runway

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Air Canada (TSX:AC) stock has and will probably continue to be one of the most turbulent names on the TSX Index. It’s the ultimate reopening stock, and with the federal government on its side that’s more than willing to lend a helping hand with financial support, the name seems like one of the better ways to outperform, as the world kicks COVID-19. Ottawa also has an equity stake in the name and a perceived floor of support at around the $23 level, so it’s not a mystery as to why many hungry Canadians have been tempted to pile in the stock ahead of the so-called Roaring ’20s.

There’s ample pent-up demand for air travel, and if the performance of many of the American airlines is a sign of things to come, Air Canada almost seems like a must-buy.

Given Air Canada is more of an international airline than a domestic one, it depends not only on Canada reaching herd immunity but the world. The vaccine rollout in Canada hasn’t gone nearly as fast as in some other countries like the U.S., Israel, or the United Kingdom. That said, an accelerated effort into the spring and summer could relieve some of the pressures weighing down Air Canada stock, as it looks to capitalize on peak travel season.

In any case, it remains tough to pick a winner in the critical race between COVID-19 vaccines and variants of concern. There’s no telling if the summer will be (near) normal due to more jabs being delivered in arms. There’s also no telling if another (fourth) autumn wave will happen. Could variants of concern cause another wave in spite of advanced vaccination efforts? It’s possible. In any case, Air Canada still faces high-impact, albeit low-probability hurdles en route to normalcy.

Air Canada stock: Is a plunge on the horizon?

Air Canada stock will remain turbulent, but I don’t necessarily see a big drop on the horizon, especially as more shots are given, and the country winds down from its horrific third wave. I think the summer season could be kind to Air Canada, despite the slow pace of vaccinations in the country.

That said, the triple-mutant variant identified in India could pose a serious risk to international travel over the coming months. Last year, the summer season was a break from lockdowns and all the sort, as Canada went into a temporary period of near normalcy. While I do think this summer will be better than last summer, I can’t be sure, and that’s the biggest risk facing Air Canada stock right now. Will variants or vaccines take the lead going into the summer season?

Another question investors should be asking themselves is whether Air Canada be in a spot to meet the tremendous amount of pent-up air travel demand, as Canadians feel more confident about travel after they receive their first and second doses of vaccine. I’d be willing to bet that sentiment will drastically shift, and people will feel more comfortable getting aboard a crowded tube in the sky after they receive partial or full protection from the insidious coronavirus.

As such, I do not expect Air Canada stock to crumble significantly. However, I think investors should expect turbulence from the name. Fasten your seatbelt.

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 Joey Frenette has no position in any of the stocks mentioned.

More on Coronavirus

Business success with growing, rising charts and businessman in background
Coronavirus

1 Growth Stock Every Canadian Investor Should Consider Right Now

This growth stock saw shares pop 10% on June 20, as one analyst stated there is a significant opportunity to…

Read more »

Aircraft wing plane
Coronavirus

Bombardier Stock Merge: What it Means for Investors

Bombardier (TSX:BBD.B) stock went through a reverse stock split on June 13, turning 25 shares into one in one swift…

Read more »

Aircraft wing plane
Coronavirus

Air Canada (TSX:AC) Stock: Ready to Take Off?

While Air Canada is handling what it can control really well, there are many worsening macro headwinds that will likely…

Read more »

rail train
Coronavirus

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Biotech stocks
Coronavirus

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

grow dividends
Coronavirus

Goodfood Stock Likely to Double in 2022!

Goodfood (TSX:FOOD) stock has had a huge rise and fall in the last few years. But at $1.85 a share,…

Read more »

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »