Air Canada (TSX:AC) has been one of the worst-affected Canadian companies by COVID-19. Its stock tanked by about 53% in 2020, but investors hoped for a better 2021, expecting a sharp recovery in its financials. These expectations drove a sharp double-digit rally in Air Canada stock in the first quarter of 2021. However, these gains didn’t last for long as the emergence of new COVID variants kept hurting the whole aviation and travel industry, including Air Canada. Instead of staging a sharp recovery, AC stock extended its losses by 7% in 2021 as a result.
Air Canada’s big challenges
In April 2021, Air Canada reached an agreement with the government that gave it access to over $5.5 billion liquidity under the large employer emergency financing facility program. The government’s financial support, however, failed to boost investors’ confidence, as its stock continued to go sideways.
Some early signs of a sharp recovery in the overall travel demand came as a big relief for Air Canada investors, which drove its stock price up by 10.5% in May 2021. But continued restrictions on air travel turned the stock downward again, and it continued to fall for the next six months.
In November 2021, the airline company exited the government’s financial support, as it highlighted its continued recovery from the pandemic.
But has Air Canada stock bottomed out?
Investors were expecting the new year 2022 to bring some rays of hope for the ailing Canadian airline company. However, the onset of the new Omicron variant didn’t let that happen, and everything looked like déjà vu. On January 4, Air Canada had to announce the cancellation of all direct passenger flights between Canada and Hong Kong from January 7 amid re-emerging concerns about the pandemic. The airline company currently expects its passenger flight operations on the route to resume on March 1.
In such a scenario, Air Canada seems to have shifted its focus on improving its cargo operations again. Last month, the airline put its first dedicated Boeing 767-300ER freighter aircraft into service. Clearly, these improvements in its cargo operations won’t be enough for its overall financial recovery. A consistent, sharp rise in air travel demand would be the only major factor that could fuel a big recovery in its financials. But the new coronavirus variants are dimming the possibility of that happening anytime soon.
While the year has just started, and I can’t deny the possibility of the travel demand recovering in the second half of the year, Omicron variant-related worries would certainly delay Air Canada’s financial recovery. That’s why I don’t expect Air Canada stock to stage a big recovery in 2022 — at least not in the first half of the year. In fact, if the new variant forces the administration to impose fresh restrictions on air travel, it could drive AC stock further lower.
That’s one of the reasons I recommend investors park their hard-earned money in some cheap growth stocks at the moment instead of waiting for a recovery in Air Canada stock.