I am revisiting Air Canada (TSX:AC) after reading news that Canada’s flag carrier plans to double its capacity this year. This latest development could be the much-needed shot in the arm for the airline stock to finally take flight.
Many market analysts doubt a swift recovery due to the company’s eight consecutive quarterly losses since Q1 2020. However, Air Canada’s brighter travel outlook and expected recovery of most of its pre-pandemic capacity going forward augurs well for the growth stock.
Its CEO, Michael Rousseau, said, “With the pandemic receding and travel returning, Air Canada has put in place a strategy to return to profitability and increase long-term shareholder value.” Performance-wise, and at $24.36 per share, current investors are up 15.29% year to date.
Double capacity
Management projects Air Canada’s capacity in 2022, measured by available seat miles (ASM), to improve by 150% compared with 2021. The target capacity, however, would still be 75% of the pre-pandemic level. It also expects between a 13% and 15% increase in adjusted cost per available seat mile for this year versus 2019.
Rousseau adds, “Our expectations for the long-term success of our airline give us confidence to set out key targets.” The $8.71 billion airline company estimates capacity for 2024 to be about 95% of the 2019 level. Air Canada, more or less, sees a full recovery by year-end 2024.
Meanwhile, management predicts the continuation of a strong recovery in 2022 with the jump in ASM. The company, however, stresses that all forecasts are based on several assumptions and could fall short due to ever-present risks and uncertainties. Jet fuel price volatility is among the threats to the airline industry.
Encouraging signs
Beginning April 1, 2022, fully vaccinated passengers no longer need any COVID-19 test to enter Canada. Health officials, however, said there could still be random tests for some passengers arriving in the country. Unvaccinated or partially vaccinated Canadians or travellers must still provide a rapid antigen test result for travel to Canada.
On March 22, 2022, Air Canada announced the purchase of 26 Airbus A321neo aircraft to boost its fleet as travel demand returns. The initial delivery would be in the Q1 2024, with the final aircraft arriving in Q1 2027. Under an agreement with Airbus S.A.S., Air Canada has purchase rights to buy an additional 14 planes between 2027 and 2030.
Moreover, the freighter network is expanding, while its e-commerce offering is growing. A second Boeing 767-300ER freighter is coming in May that will allow Air Canada Cargo to extend its freighter service to five major cities abroad.
Matthieu Casey, managing director, Air Canada commercial cargo, said, “The entry into service of our second freighter is yet another exciting milestone in the growth.” He adds the freighter network provides more options and services to the cargo community.”
Air Canada commits to establishing a steady source of diversified revenue through its thriving air cargo business. The division had great success in 2021 as cargo-only flights increased 141% to 10,217 versus 2020. Its $1.5 billion cargo revenue for the year was an all-time high.
Turbulence ahead
Investors have been waiting for Air Canada to deliver exponential growth in post-pandemic. The business outlook is bright, but turbulence still lurks to upset the airline’s grand plans for 2022 and beyond.
