There are many looking at their Air Canada (TSX: AC) shares on the TSX today and feeling sick. After hitting all-time highs back in 2019, the company plunged and has yet to recover. But not everyone has shares like this.
In fact, if you had invested just $1,000 in 2014, your shares could be worth as much as $3,041 as of writing! So, what was going on to cause those shares to climb, and is it something Air Canada stock can do again?
What happened?
While 2014 would have been a great time to invest, an even better time would have been back in 2012. This is when Air Canada stock fell below $1, and changes were needed. There were several factors that helped the company turn around, both on a micro and macro level.
From a macro view, the price of oil dramatically dropped during this time, starting in 2014. Jet fuel is a major expense of airlines, and this decrease alone helped improve profit margins for Air Canada stock. The market had also recovered by then from the Great Recession, allowing for more investor confidence.
On a micro level, Air Canada stock went through restructuring and efficiency improvements during this period. The company focused on cost-cutting as well as operational efficiency. This included streamlining operations, reducing debt, and optimizing its fleet. These helped the overall health of the company and its profitability.
Hitting high, falling low
Shares then hit an all-time high in April 2019, when shares hit about $40.39. This came down to even more favourable conditions on a micro and macro level. The broader market in 2019 was strong, with generally bullish views of the market. But Air Canada stock was hitting headlines.
The company demonstrated strong financial performance, particularly in the first quarter of 2019. More passengers led to more revenue, and there was also the acquisition of the Aeroplan loyalty program. It was even in the talks of acquiring Transat (TSX: TRZ), which signalled the company would only rise higher.
But it didn’t. And that came down to the pandemic and all the fallout. There was a plunge in share price from the COVID-19 pandemic and the grounding of airlines, including Air Canada stock. This led to higher debt, diluting share value, and huge investor uncertainty. Add in rising fuel costs, and Air Canada stock dropped like a stone.
Still not back up
The question now is whether Air Canada stock can get back up and why it hasn’t in the first place. There are a few reasons for this as well. The pandemic continues to impact the stock, including passenger volumes. However, more pressing has been inflation and interest rates, leading to fewer consumers.
But beyond this, there are far more competitors and far more that offer low-cost airfares. And again, we’ve seen a huge rise in fuel costs, and this has reduced profitability as well. That being said, the company has been improving slowly but surely. The stock swung to a net profit of $2.28 billion in 2023 from a $1.7 billion loss the year before. Revenue was up 32%, and demand saw bookings climb 6% year over year.
Air Canada stock now sees its 2024 core profit hit between $3.7 and $4.2 billion for 2024. So, there is certainly optimism for the future. Sustained travel demand, stabilizing fuel costs, and successful debt management could see the company climb back. However, a further economic slowdown, setbacks in travel recovery, more competition and higher fuel prices would all hit the company hard. Until all these positives can be put in the rearview, we could be looking at more trouble for Air Canada stock in the future.
