It looks like Air Canada (TSX:AC) is having a great summer, at least in terms of bookings. Air Canada stock reported better than expected quarterly profit last week, with passenger bookings remaining strong into 2024.
But even with this good news, there’s reason to be cautious.
First, the earnings
Strong international demand continued for Air Canada stock in its recent quarter, with travellers making up time for the lost travel experienced in the pandemic. This caused the airline to raise its earlier 2023 guidance of around $3.5 to $4 billion for earnings before interest, taxes, depreciation and amortization (EBITDA) to between $3.75 and $4 billion.
The quarter saw net income come in at $883 million for the quarter, or $1.85 per diluted share. This was well above the $289.8 million expected, according to data from Refinitiv. Now, the carrier expects costs per available seat mile to hit 0.5% to 1.5% above 2022 levels. This is a stark contrast to the 0.5% to 2.5% below 2022 levels expected earlier in May.
Still some worries ahead
Shares of Air Canada stock were up 4% on opening trades but quickly came back down to opening levels. This comes as North American carriers all face continuing pressure. From jet fuel prices to labour costs, there are even talks of Air Canada stock experiencing a walkout from its pilots as contracts expire in September.
Yet even during the last quarter, Air Canada stock still experienced many issues resulting in flight delays. Despite hitting profitability, operations still fell short of expected levels due to severe weather and global supply chain issues, management said.
These issues could be a problem for future quarters, even with solid bookings. The carrier recently ranked last among North America’s 10 biggest airlines for on-time performance in July. About half of Air Canada’s flights were late or even cancelled outright in the last few months.
What investors should do now
We’re still quite far away from those $50 share prices investors experienced before the pandemic crash. And that’s not likely to come back any time soon, as much as we’d appreciate it. Instead, there is a long road to recovery.
That being said, part of that recovery is already underway. The stock has now roared back to profitability — something that seemed impossible a few years ago with billions lost during the pandemic. Yet ongoing issues could cause at least hiccoughs if not full-out panic among investors.
A pilot walkout in particular could be devastating, and ongoing severe weather may get worse in the winter months. Therefore, Air Canada stock still has a long way to go to bring back investor interest.
That being said, long-term investors will still certainly see some gains in the next decade at least. It’s all about whether you have the time and patience to wait that long. For now, however, I would at least wait until after September, when contracts expire for the company’s pilots, before picking up this stock once more.
