Why Air Canada Stock Dived Over 10% on Monday

Here’s the key reason why Air Canada (TSX:AC) stock has lost 18% of its value in the last three sessions.

Jitendra Parashar

Author Bio Jitendra Parashar is a financial journalist who has been writing for The Motley Fool Canada since June 2020. With more than 13 years of experience in financial journalism, equity research, and market analysis, he helps investors understand market developments and identify long-term investment opportunities. Before joining The Motley Fool Canada, Jitendra spent several years at Market Realist covering U.S. equities, major economic developments, and developments in the automotive and technology industries. He also worked in commodity and currency research at brokerage firms, gaining insight into how economic trends, central bank decisions, and geopolitical events influence financial markets. Jitendra writes for beginner investors, dividend seekers, and Canadians looking to build wealth over the long term. He also contributes to the daily TSX Today series, explaining key Canadian market developments and highlighting news investors should watch. Based in India, Jitendra follows Canadian and U.S. markets closely. Outside of work, he enjoys travelling in the Himalayas, street and nature photography, and exploring programming and artificial intelligence. Education MBA in Finance and International Business Bachelor's degree in Journalism Areas of Expertise Canadian and U.S. financial markets, long-term equity investing, dividend investing, macroeconomic and geopolitical trends, automotive stocks, emerging technologies, and artificial intelligence. Social Media Profiles LinkedIn Muck Rack Favorite Investment Quote “Simplicity is the master key to financial success.” — John C. Bogle

Published March 8, 2022 1:00 pm EST

What happened?

Shares of Air Canada (TSX: AC) continue to slide down in March after consistently rising in the previous three months. After declining by 11.2% last week, Air Canada stock dived by 10.5% on Monday to $19.59 per share, starting the week on a bearish note. With this, it has reached its lowest closing level in over a year. In the last three sessions combined, Air Canada stock has seen nearly 18% value erosion, despite no major change in the main TSX benchmark during the same period.

So what?

In the last couple of weeks, the ongoing Russia-Ukraine conflict has been the main focus of global investors. As the war between the two nations continues to escalate, emerging supply concerns are driving the prices of crude oil and other energy products steeply higher. As a result, WTI crude oil prices are now hovering close to their highest level since 2008. Similarly, jet fuel prices have recently skyrocketed to their highest levels in over a decade.

It’s important to note that fuel is one of the biggest costs for airline companies, including Air Canada. And if fuel prices continue to surge, they are likely to badly impact the airline industry’s profitability. These worries continue to make investors nervous, triggering a sharp selloff in the shares of airline companies. This sector-wide selloff explains why Air Canada stock dived by more than 10% on Monday.

Now what?

Air Canada stock’s recent downward movement comes as a big blow to investors as they have been waiting for it to recover for nearly two years now. While pandemic-driven shutdowns triggered a big selloff in Air Canada stock in Q1 2020, its struggle for recovery continued in 2021, as new COVID variants kept hurting air travel demand.

Although the recent signs of a recovery in air travel demand have been encouraging for Air Canada, a consistent rally in fuel prices could be a big threat to the company’s expected financial recovery. That’s one of the key reasons why I would recommend conservative investors remain cautious before investing their hard-earned money in Air Canada in the near term.