Two prominent companies in North America’s airline industry were rocked by dissension regarding labour contracts. Unfortunately, work and production lines at Boeing in the U.S. stopped. The members of the International Association of Machinists and Aerospace Workers went on strike on September 13, 2024, after rejecting the plane maker’s labour offer.
On August 22, 2024, Air Canada (TSX:AC) pilots, represented by the Air Line Pilots Association (ALPA), voted overwhelmingly and authorized union leaders to call a strike. The union also wants a new and improved collective bargaining agreement.
Fortunately, Canada’s flag carrier averted a strike and a complete operations shutdown, unlike Boeing. News came out on September 15, 2024 that the parties reached a tentative agreement. The details of the last-minute deal remain undisclosed pending ratification, although ALPA intimated a 46% increase over the expired September 2023 contract.
Because the outcome is favourable, is now the time to buy Air Canada stock?
Business as usual
Many passengers with pre-purchased airline tickets hoped for a resolution to the dispute. The airline statement read, “The new agreement recognizes the contributions and professionalism of Air Canada’s pilot group, while providing a framework for the future growth of the airline.”
Charlene Hudy, a first officer and chair of the Air Canada ALPA MEC, said the deal also represents progress on several key issues including compensation, retirement, and work rules. The union contends that pilots received below-market compensation while Air Canada continues to post record profits.
If the strike had materialized on September 18, 670 daily flights on average by Air Canada and Air Canada Rouge would have been affected. Moreover, it would have disrupted the travel plans of over 110,000 passengers.
Air Canada Cargo implemented temporary acceptance policies in anticipation of a pilot strike but has already removed them. Customers can book, and cargo shipments will proceed.
Latest financial results
The record profits that pilots highlighted might not be accurate if you look at the latest financial results. Air Canada made a turnaround in 2023 as net income reached $2.3 billion compared to the $1.7 billion net loss in 2023. However, in the first half of 2024, net income dropped 60.9% year-over-year to $329 million.
Also, free cash flow (FCF) dropped 22.8% to $1.5 billion from a year ago. The positive was the 4.2% year-over-year increase in operating revenues to $10.8 billion. Air Canada Cargo saw its revenue decline 4% year-over-year to $445 million.
Besides the healthy demand, Michael Rousseau, President and CEO of Air Canada, said load factors in Q2 2024 remained above historical averages. Total capacity also increased by 6.5% versus Q2 2023. He assured the $5.7 billion carrier will continue to adapt to market conditions, manage capacity proactively, and contain costs through productivity and other initiatives.
Nowhere to go but up
The new pilot agreement erased uncertainties about the airline stock. At $16.67 per share, the year-to-date loss is 10.8%. However, with the roadblock gone, Kevin Chiang, an analyst at CIBC Capital Markets, raised his 12-to-18 month price target to $25 (+50 %). There’s no way to go now but up.
