Are your travel plans for 2024 in place? Like you, thousands of Canadians have planned their summer vacation. And that will drive seasonal revenue for Air Canada (TSX: AC) in the second quarter. If you have burned your hands buying the stock at a price of $26 over hopes of a rebound, here’s a way to recover your losses.
Air Canada: What to expect in 2024?
Air Canada has recovered over 90% of its pre-pandemic revenue in 2023. This year, it might surpass the 2019 revenue and report a new high. But this also means the revenue growth rate would normalize and so would its profits.
While the airline recovered to its pre-pandemic revenue and even surpassed its pre-pandemic profit, its stock price continues to trade at pandemic levels of $18 in 2023. Why so? The airline diluted its shareholding by issuing several new equity shares during the pandemic. Air Canada’s priority would be significantly reducing its debt and probably considering stock buybacks.
At present, it has net debt of $5.4 billion with $8.9 billion in cash and long-term investments. Otherwise, the total debt is still high at $14.4 billion. You can expect another $1 to $2 billion reduction in total debt in 2024.
Moreover, an easing in oil prices and early signs of economic recovery could make the 2024 summer season rally as strong as 2023. Air Canada’s stock could surge closer to $25 in June, maintaining its last two years’ seasonal trend. The rally will likely begin in February when the airline announces its full-year 2023 earnings.
How to make money from Air Canada?
Airlines generally take longer to recover. However, the recovery from the worst crisis was quick. In 2021, most industry experts suggested a three-year recovery period. So 2024 will probably be the year the airline stock breaks its $26 resistance and surges to $28. However, that would be too bullish and might not sustain that level long.
So rather than leaving your profits to chance, you can rely on the stock’s $18-$26 range-bound growth in the short term. Buy the stock while it trades at nearly $18 and wait till June to sell at $25. This way, you can at least recover the loss from buying Air Canada shares at the $26 price point.
Airlines is a cyclical industry that makes it a perfect sector for active investing. Air Canada’s fundamentals suggest that the fear of bankruptcy has vanished into thin air. In fact, the airline could aim for a credit ratings upgrade, which could give the stock a push to go beyond $26.
Remember, the stock price reflects investors’ expectations of the stock’s future growth potential.
2024 could see demand growth stabilize. However, management will continue focusing on reducing debt and improving cash flow.
Another airline preparing to fly the skies of recovery
While we are on the topic of upcoming summer vacation travel, pure-play leisure travel airline Transat AT is showing signs of recovery. It is the same company Air Canada was acquiring before the pandemic but walked away from the deal during the pandemic.
From near bankruptcy to its first net profit of $3.2 million in the fourth quarter of 2023, Transat AT has shown its potential to thrive. It is selling some land and hotels it bought before the pandemic as it looked to expand into the hotel business. It will use the sales proceeds to reduce debt, which carries a hefty interest rate.
Moreover, Transat is seeing a recovery in demand and improved efficiency. While the company’s turnaround of the stock is still a long ways away, you can buy and hold this stock for the long term. If Transat succeeds in its turnaround, the $4 stock could become $12 within a year. But invest only the amount you don’t mind losing, as the stock is still a risky investment.
