What to Expect From Air Canada Stock in 2024

Air Canada (TSX:AC) has recovered from COVID-19, but its stock hasn’t.

| More on:

Air Canada (TSX:AC) has been one of the worst-performing TSX stocks over the last four years. Since the start of 2020, it has fallen 59% in price. Although the current stock price — $20 — is considerably higher than it was at the March 2020 lows, it is basically unchanged from the day in early 2021 when the COVID-19 vaccine was first announced.

The reason why Air Canada stock got beaten down is fairly obvious: it was a casualty of the COVID-19 pandemic. When the pandemic came to Canada, entire cities shut down, Provinces mandated 14 days of self-isolation upon arrival from other provinces, and entire international routes were shut down. Air Canada’s revenue predictably collapsed, and it lost $2.6 billion in 2020, followed by another multi-billion-dollar loss in 2022. The stock fell all the way to $12 as these events were taking place.

But a curious thing happened: in 2022, Air Canada started recovering, with no corresponding increase in its stock price. It hit a high of $29.42 in 2021 — when lockdowns were still occurring — and hasn’t retaken that level since then. In 2022, Air Canada’s revenue grew. In 2023, it was profitable. Over the last three years, revenue compounded at a 55% annual growth rate (CAGR). The company took on some extra debt during the COVID-19 crisis, but it had very low interest rates and is now being paid off.

In this article, I’ll make the case that Air Canada’s results in the next few years are likely to be satisfactory.

Revenue growth should be high

One thing that’s quite likely to happen with Air Canada in the next few years is revenue growth. COVID lockdowns are a thing of the past. People are 100% free to travel once more. But at the same time, there are only two “large” airlines in Canada, and the second largest (WestJet) is nowhere near Air Canada’s scale. So, AC likely enjoys significant pricing power heading into the fiscal year ahead.

Fuel costs might eat into earnings

On a somewhat less positive note, Air Canada is facing rising fuel prices right now. Crude oil prices have been rising all year long, and the rise in crude has caused jet fuel prices to rise, too. Jet fuel is the single biggest cost for airlines. If its price keeps rising, then Air Canada’s earnings may decline even with its revenue going up. However, the level of damage that high fuel prices could cause here is not that extreme. AC has few competitors: it can pass on some of the cost of higher fuel to customers. Earnings probably won’t be negative. However, they could decline if oil prices stay high.

Foolish bottom line

The bottom line on Air Canada stock is that it’s barely trading above its COVID-era valuation even though its business has fully recovered. It’s profitable, it’s growing. This is not the company that we saw trading for $20 per share in early 2021, but the stock is still around that level. I’d say this is a fairly sensible stock to own.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

money goes up and down in balance
Dividend Stocks

Invest $10,000 in This Dividend Stock for $784 in Passive Income

A top-notch dividend stock can add security and stability for any investor, and this energy option is one of the…

Read more »

a man relaxes with his feet on a pile of books
Stocks for Beginners

The Smartest Growth Stocks to Buy With $2,000 Right Now

Got $2,000 of cash to invest? There are always opportunities in the market. Here are three high quality businesses to…

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Investing

TFSA Investors: Where to Invest $7,000 Before the Year Ends

These TSX stocks offer promising growth potential, driven by their presence in rapidly expanding industries and market segments.

Read more »

people relax on mountain ledge
Dividend Stocks

Here’s the Average Canadian TFSA and RRSP at Age 40

If you're an investor needing extra passive income to bridge the gap for retirement, you're not alone. And this stock…

Read more »

ways to boost income
Dividend Stocks

CRA Alert: Tax Brackets to Increase by 2.7% in 2025

Holding the iShares S&P/TSX Capped Composite Index Fund (TSX:XIC) in a TFSA is a great way to avoid entering a…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

Best Canadian AI Stocks to Buy Now

Canadian AI stocks like Celestica continue to experience momentum as the industry is still in early stages of growth.

Read more »

how to save money
Dividend Stocks

Top Canadian Stocks to Buy Right Now With $5,000

If you have a windfall of $5,000, few stocks out there are offering up the growth that these three do.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Investing

Create Income for Life With This TFSA Strategy

Value stocks, vanilla index funds, or affordable exchange-traded funds (ETFs) are options to look to if you're looking at constructing…

Read more »