Air Travel Could Be Back to Pre-COVID Level in ’22: Will Air Canada (TSX:AC) Fly High?

TSX’s top airline stock could fly high again if global air traffic accelerates and returns to pre-pandemic level in 2022.

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Canada’s largest domestic and international airline was named the Best Airline in North America by Global Travelers recently for the third straight year. The accolade would have been sweeter if the company weren’t in the red. Nonetheless, there’s hope on the horizon heading into the New Year.

Air Canada (TSX:AC) has not reported quarterly profits since Q1 2020, although things are looking up. Revenues are soaring due to the favourable revenue and traffic trends of late. Its $2.103 billion operating revenues in Q3 2021 was 177.8% better than the same quarter last year. There are forecasts that global air traffic will accelerate in 2022.

Harry Taylor, interim president and CEO of WestJet, even said it could hit pre-pandemic levels. Meanwhile, Air Canada is down 3.73% year to date on the TSX. Market analysts’ 12-month average price target is $29.97, an upside potential of 36.7% from its current share price of $21.92. However, barring any obstacles to travel demand, the growth stock could fly higher

Exit from federal government support

On November 19, 2021, or before health officials discovered the new COVID variant, Air Canada withdrew from the federal government’s support program. Management announced that the airline didn’t need further assistance due to improving financial position and rebound in demand.  

Michael Rousseau, president and CEO of Air Canada, said, “Air Canada’s recovery from COVID-19 continues.” He acknowledged that the emergency package helped preserve jobs and maintain a level playing field with other national carriers amid the pandemic-induced downturn.

Air Canada had credit facilities worth $5.38 billion. However, the drawdowns were mainly for refunding non-refundable tickets to customers. Managed completed a series of financing transactions in August 2021 and raised a total of $7.1 billion in gross proceeds. Also, apart from lowering borrowing costs, there was an extension of corporate debt maturities.

After Q3 2021 (quarter ended September 30, 2021), Air Canada had $14.4 billion in unrestricted liquidity and net cash flow of $153 million. Its carrier cargo revenue increased 69.4% to $366 million during the quarter versus Q3 2020, and it also represented a 55% year-over-year increase compared to the first nine months of 2020. Air Canada’s said it was the first time that its cargo revenue topped $1 billion.

Downgraded forecast

Fitch Ratings downgraded its global airline traffic forecast for 2021 and 2022 recently. The rating agency cited the slow rebound in international traffic and still-constrained business travel for the revision. However, it believes the pace of recovery should accelerate next year through 2023.

Increasing vaccination rates, growing treatment options, and easing border restrictions in more countries are factors that should drive air travel demand. Also, carriers with adequate liquidity can navigate continued volatility in the operating environment. Fitch expects global air traffic to return to pre-pandemic levels in 2024.

Restarting a complex ecosystem

Rousseau assures that Air Canada is rebuilding its network and working hard to restart a very complex ecosystem. With its unstoppable energy, purpose, and steadfast optimism, he is sure that Canada’s flag carrier can navigate the challenging environment and look forward to brighter skies ahead.

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. The Motley Fool has no position in any of the stocks mentioned.

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