Air Canada (TSX:AC) Reports Massive Q2 Losses: Buy or Sell?

Canada’s flag carrier reported a $386 million net loss in Q2 2022 to mark 10 consecutive quarterly losses beginning in 2020.

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Canada’s flag carrier posted a net loss of $386 in the second quarter (Q2) 2022 to mark 10 consecutive quarterly losses since the onset of the global pandemic. Air Canada (TSX:AC) had an average net loss of $4.12 billion in the last two years, but the figure should improve in 2022 due to the return of travel demand and soaring revenues.

However, TSX’s top airline stock continues to flounder this year. Investors had high hopes of a resounding rebound last year, but it didn’t happen. The impact of the coronavirus outbreak on the airline industry was abrupt and catastrophic. Air Canada was a promising high-growth stock following its inclusion in the inaugural TSX30 List in 2019. It ranked seventh in the flagship program for the TSX’s top 30 growth stocks.

The $1.049 billion loss in Q1 2020 was the first time in 27 quarters that Air Canada didn’t report an operating revenue growth. In 2020, the stock’s total return was -53%, although investors lost by only 7% in the following year. As of August 5, 2022, the share price is $18.06, or a year-to-date loss of 14.53%.

In the quarter ended June 30, 2022, operating capacity based on Available Seat Miles (ASM) increased approximately five times more than in Q2 2021. Air Canada’s passenger and operating revenues also increased significantly year over year, growing eight-fold and five-fold, respectively. The operating loss went down to $253 million from $1.13 billion from a year ago.

Recovery isn’t easy

Despite the five-fold increase in revenue and soaring ticket sales in Q2 2022, profitability remains elusive. Michael Rousseau, Air Canada’s president and chief executive officer, said, “Despite meticulous planning and projecting, participants involved in the air transport system are facing significant pressure in restarting. We continue to work together to restore the travel experience to expectations and are encouraged by recent improvements.”

Rousseau also said, “We are working closely with our service providers and governments to keep addressing the issues aviation is facing in Canada and globally. We acknowledge the inconveniences and disruptions some of our customers have faced, and we deeply regret this.” He added that it’s not business as usual for Air Canada. 

On the operating side, 94% (232 aircraft) of Air Canada’s fleet is back in service. Personnel support is almost 90% of the pre-pandemic staffing levels. According to Rousseau, management expects travel to rebound significantly. The plan is to operate about 80% of Air Canada’s pre-pandemic schedule.

Scaled-back rebound plans

The $6.46 billion airline company admits to scaling back on its ambitious rebound plans.

It slashed or 15% of scheduled flights in July and August to the dismay of customers. Published reports say that Air Canada and Toronto’s Pearson airport tops the global flight delay list.

Buy rating

Market analysts covering Air Canada recommend a buy rating. Their 12-month average and high price targets are $26.01 and $35, or an upside potential between 44% and 94%. The share price will appreciate in 2023, although I don’t think it will be as high as the forecasts.

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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