Air Canada (TSX:AC) stock has been languishing for over a year. Near the end of 2020, when COVID-19 vaccines were announced, the stock rallied for several months. It reached a high of about $29. Later, though, it began to fall, as it became apparent that the vaccines hadn’t caused it to become profitable. Eventually, the stock fell to about $21 and kept trading close to that level for many months.
Today, AC stock is still range bound. It closed at $21.29 on Friday and hasn’t strayed far from that level in the last month. However, the stock actually has more potential to rise now than ever before. Air Canada’s revenue has been rising in recent quarters. If things proceed according to the company’s schedule, then it will hit 2019 revenue levels next year. When that happens, Air Canada will have the potential to become profitable again, which could take its stock higher.
COVID-19 lockdowns on the way out
The big factor contributing to Air Canada’s potential turnaround is the gradual phasing out of COVID-19 lockdowns. The most recent phase of widespread public health measures in Canada was early in the first quarter. It has been several months now with no new major lockdowns. It appears that Canada may be moving toward a “new normal” or “endemic COVID” approach, which would leave people freer to travel than they had been previously. If that’s the case, then AC’s revenue should gradually rise, eventually hitting a point where profits are possible.
Revenue rising
Another point arguing that AC stock could rise is the fact that its revenue is in fact rising. In the most recent quarter, Air Canada reported the following:
- $2.5 billion in revenue, up 250%
- $1.9 billion in passenger revenue, up nearly 400%
- $550 million in operating losses, improved by $500 million
- A $1.2 billion increase in advance ticket sales
- $143 million in EBITDA, up from a loss
- $335 million in positive cash from operations, up from a $888 million outflow
Not only did revenue rise, but AC inched toward profitability. EBITDA and cash from operations were both positive. Net income still was not, but if revenue continues climbing, we could see real GAAP profits as soon as next quarter.
Will AC ever get back to 2019 prices?
As we’ve seen, Air Canada is definitely improving as a business. It has come a long way since the COVID-19 market crash. Its stock, however, isn’t doing so well. AC has been stuck in a narrow range for about a year now and shows few signs of escaping it.
Will the stock ever reach 2019 prices again?
That remains to be seen. Certainly, Air Canada has the potential to reach 2019 revenue levels, but it has taken on new debt since that year. Most likely, profit margins on the same sales level will be narrow. Also, jet fuel prices are dramatically rising this year — another factor that eats into AC’s margins.
So, Air Canada stock isn’t completely out of the woods yet. But now more than ever before, things are looking up for the company. With growing revenue and positive operating cash flows, it appears set to bounce back from its COVID-19 era slump.
