Air Canada (TSX:AC) earnings came out this week, with the company surging past earnings estimates. However, despite the strong earnings, it looks as though investors weren’t too eager to pick up Air Canada stock. So, let’s look at what earnings are telling investors and whether you’re missing out.
Profits soar
Air Canada stock stated that profits were soaring during its latest quarter as its consumers continued to look to travel. This occurred even as inflation and interest rates remained high. Net income jumped to $1.25 billion for the quarter, up from a half-a-billion loss the year before.
Bookings remained stable as well, with advance ticket sales rising 55% compared to the same time last year, reaching $4.5 billion. Even better, adjusted earnings passed 2019 levels — before the pandemic destroyed the travel industry.
Despite this good news, there were a few notes that analysts in particular focused on. This included that there remains lower flight capacity compared to pandemic levels. Further, corporate customers continue to be 25-30% lower than pre-pandemic levels.
Passenger rights: Could they hurt?
What might worry some investors is the current passenger rights and pilot hours overhaul that is sweeping through airlines. Some worry it will hurt the bottom line for Air Canada stock, though management remains confident that won’t be the case.
While management stated it doesn’t expect hundreds of millions of dollars spent on the changes, it “could have some impacts that may still be felt when we look forward to [2024] and beyond.”
The passenger rights proposed mainly focus on customers being denied compensation when there are flight delays or cancellations — especially when required for safety purposes. These costs would now be on carriers, with a penalty at $250,000 — 10 times what it was before.
What analysts say
Analysts quickly weighed in on the earnings report, and it included the passenger rights as well as the agreement for pilots. There was a major wage hike agreed this year for many pilots in the United States, as well as with WestJet. And that’s likely to come to Air Canada stock as well.
Therefore, costs look to be increasing, even as demand rises. So, even though bookings are up, it’s going to take increasing capacity to really see the stock get back to normal. If not, there will likely continue to be lower discretionary income through 2024.
Even so, Air Canada stock stated it’s looking towards a strong future. Its adjusted cost per available seat mile for 2023 should reach 1.5% to 2.25% higher than 2022 levels. That’s far higher than earlier estimates as well.
Bottom line
While there was good news for Air Canada stock, some investors may fear the stock has peaked its performance. This is likely why the company remains at around $16.50 at the time of writing. This is a fraction of where it was before the pandemic and hasn’t done any better in that time.
So, until capacity can increase and the company is able to make it through the increasing costs expected, it might be best to leave Air Canada stock on the ground for now.
