Is Air Canada Stock a Buy Today?

Airlines are on the rebound. Does Air Canada stock deserve to be on your buy list?

| More on:
Airport and plane

Image source: Getty Images

Air travel is on the rebound after global pandemic lockdowns hammered the industry. Investors are now wondering if travel stocks like Air Canada (TSX:AC) are now good to buy for a self-directed portfolio.

Travel rebound

Airlines are ramping up capacity again to meet soaring travel demand. The end of COVID-19 restrictions in most parts of the world means people can once again take a holiday or go to visit relatives and friends in different countries. The pent-up demand and limited seat capacity have enabled airlines to increase prices. This helps offset the sharp increases in fuel costs caused by high oil prices. It also means some airlines are targeting a return to profitability earlier than expected.

Business trips are also starting to recover as executives and salespeople rekindle in-person relationships with key customers. This is good news for airlines. The business seats command the highest prices and have historically provided the margins that make flights profitable. Analysts, however, are still debating if online meetings will permanently replace some business travel.

In the near term, a global economic downturn could put the brakes on the recovery in air travel. High inflation and rising mortgage costs could force households to cut the annual holiday from the budget. A recession will also impact businesses. Travel is expensive and non-essential trips could be reduced or eliminated to protect cash flows, especially after the pandemic proved that business people can get deals done via online meetings.

Is Air Canada a good stock to buy today?

Air Canada reported a net loss of $508 million in Q3 2022 compared to a net loss of $640 million in the same period last year. Operating income was positive for the first time since the start of the pandemic, but Air Canada still has some work to do to get to profitability.

With total liquidity of $10.2 billion, Air Canada has the capital to ride out a potential economic downturn, but net debt is up $876 million since the start of the year to $7.8 billion as of September 30, 2022. That’s not encouraging and investors will want to keep an eye on the net debt number in the coming quarters.

High fuel prices are expected to continue. The airline industry, like many other sectors, is also struggling with staff shortages after massive job cuts put in place during the pandemic. Air Canada slashed more than half of its staff. The challenge of finding enough employees has led to a jump in wage costs that have to be covered through higher ticket prices. Travellers have been willing to pay more to travel after being stuck at home for so long. But it is uncertain if that trend will continue, especially as inflation and rising debt expenses continue to hit discretionary spending.

Air Canada trades near $19 per share at the time of writing compared with a 12-month high near $26. Despite the dip, the stock still looks expensive for a company that continues to lose money. Given the uncertain economic outlook, I would probably search for other opportunities in the market today.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Coronavirus

Illustration of data, cloud computing and microchips
Stocks for Beginners

3 Canadian Stocks That Could Still Double in 2024

These three Canadians stocks have been huge winners already in 2024, but still have room to double again in the…

Read more »

Aircraft Mechanic checking jet engine of the airplane

Can Air Canada Stock Recover in 2024?

Air Canada (TSX:AC) stock remains close to its COVID-19 era lows, even though its business has recovered.

Read more »

A airplane sits on a runway.

3 Things to Know About Air Canada Stock Before You Buy

Air Canada stock continues to hover below $20 despite the sharp rise in travel demand seen across the industry. What's…

Read more »

tech and analysis
Stocks for Beginners

If You Invested $1,000 in WELL Health in 2019, Here is What It’s Worth Now

WELL stock (TSX:WELL) has fallen pretty dramatically from all-time highs, but what if you bought just before the rise? Should…

Read more »

Hand arranging wood block stacking as step stair with arrow up.

2 Pandemic Stocks That Are Still Rising, and 1 Offering a Major Deal

There are some pandemic stocks that crashed and burned, while others have made a massive comeback. And this one stock…

Read more »

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »

Plane on runway, aircraft

Can Air Canada Double in 5 Years? Here’s What it Would Take

Air Canada (TSX:AC) stock has gone nowhere since 2020. Can this change?

Read more »