Air Canada (TSX:AC) investors have long been waiting for a sharp recovery in its share prices in the post-pandemic era. While the largest Canadian passenger airline company’s 2023 earnings seem to be on track to surpass its pre-pandemic year 2019 earnings levels, AC stock’s struggle hasn’t ended yet. To give you an idea about that, Air Canada stock is still down 63% from its 2019 closing level. By comparison, the TSX Composite benchmark has risen 14% during the same period.
Before we discuss what lies ahead of Air Canada stock in 2024, let’s take a closer look at some key factors that could be responsible for badly affecting its share price movement in recent years.
Air Canada stock’s struggle continues in 2023
A massive selloff in Air Canada stock started in early 2020 after the World Health Organization declared COVID-19 a global pandemic. Besides travel and hospitality, airline business was also among the sectors investors feared could be the worst affected by the pandemic. These fears led to a 67.5% crash in AC stock in the first quarter of 2020.
While investors’ concerns about the pandemic’s negative impact on Air Canada’s business weren’t completely unfounded, such a massive crash in Air Canada stock was largely a part of panic selling among retail investors who wanted to avoid any potential damage to their stock portfolio.
After this panic selling in the first quarter of 2020, AC stock appeared to stabilize a bit later during the year, raising investors’ expectations that it might be on track for a strong recovery in the coming years. But long story short, Air Canada stock hasn’t been able to regain investors’ confidence fully after the crash and still trades well more than 60% below its 2019 closing level, as I said at the start of this article.
Here’s what could drive AC stock in 2024
While Air Canada isn’t the only stock that has appeared to have lost investors’ confidence in the post-pandemic era, its continued post-pandemic financial recovery, strong liquidity, and improving overall fundamentals make it very difficult to ignore after recent declines.
In my opinion, the direction of jet fuel prices, air traffic growth trends, and the possibility of a recession are likely to play a key role in guiding Air Canada stock next year.
While low jet fuel prices boost airline companies’ profitability, moderate price volatility might not wipe out Air Canada’s entire profits if the demand remains strong. Speaking of the demand, we have seen a huge improvement in air travel demand, including business and leisure travel, over the last two years. This trend is unlikely to reverse in 2024 unless we enter a phase of a severe recession.
As far as the possibility of a recession is concerned, while high inflation and elevated interest rates might lead to a moderate recession in the near term, considering the consistent strength in the labour market and consumer sentiments, they’re unlikely to cause “a serious recession,” as Bank of Canada governor Tiff Macklem recently suggested.
We also shouldn’t forget that since 2020, Air Canada has shown enough flexibility to prove that its management can dynamically adjust its strategic focus on various business segments based on economic and industry trends.
Given all that, I wouldn’t be surprised if Air Canada stock stages a spectacular recovery as soon as economic worries gradually subside and make investors realize how undervalued AC stock looks after witnessing big losses in recent years.
