Air Canada (TSX:AC) stock has been through several rough years after the flag carrier airline of Canada hit all-time highs before the pandemic caused it to drop into oblivion. Yet recently, there has been a huge increase in share price, especially after paying off a substantial loan. But after years of working on bringing up its bottom line, is it time for investors to take to the skies with Air Canada stock?
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The bull case
Air Canada stock could be a great opportunity for investors hoping to see those $50 share prices once more. The pandemic was hard on the stock, but since COVID-19, bailouts and increased travel have led to an increased recovery. What’s more, the company has also started expanding, hoping to bring in even more clientele.
Air Canada stock isn’t looking to miss out on any opportunity with the pent-up demand for travel. It already has a long history of business demand, with its international business travel now back in full swing. However, its recent endeavours such as Rouge have led to more growth for the company, with cheaper airlines on offer for travellers to consider.
What’s more, the company has made progress in reducing costs over time. This certainly has helped during this period, where higher interest rates and inflation have led to more costs for the company, with the potential for travellers to seek out other airlines for a lower price.
With its strong market position, Air Canada stock remains with a competitive advantage over its peers. It continues to improve its fuel efficiency, reduce emissions, and drive long-term growth for investors. Furthermore, the company has made a major focus on its long-term finances, with a strong balance sheet now on offer, providing stability and flexibility to weather the current storm and pursue more growth opportunities.
The bear case for Air Canada stock
Many of the same issues the company has overcome remain issues today. The pandemic, of course, is one of them. The lingering effects continue to provide uncertainty about the future of air travel, with the potential for huge costs to hurt the airline once more, leading to further financial challenges.
Even if this only occurs for the next few years, it’s still going to be difficult for investors to hop back on board Air Canada stock. What’s more, there are further options for investors to consider these days. Competitors continue to provide cheaper options, and while Air Canada stock may have a handle on business travel, it has a long way to go to edge in on low-cost air travel.
To remain competitive then, it’s going to be costly. Whether that means investing in aircraft to provide lower airfare, improving fuel efficiency, or keeping up with regulatory challenges, it can all impact the company’s operations and profitability.
So, while the company has received government assistance programs and raised capital through equity offerings, debts still remain high. It now sits at a loss of $1.7 billion, and while that’s an improvement, there is clearly far more to go.
Bottom line
Air Canada stock is up 51% in the last year, with a huge increase, as it recently announced the repayment of its finance loans to acquire 19 Airbus aircraft at $650 million. Yet shares are still half of where they were before the March 2020 crash, and they have been there for years now. So, until this stock looks close to paying off all its debts, I wouldn’t say it’s a must-buy at this stage.
