A few days ago, I wrote an article on Air Canada (TSX:AC) stock that outlined the three things that mattered for the company at the time. The article outlined several major risk factors for the company that, depending on whether or not they materialized, could make or break the company’s near-term prospects. Those risk factors included the looming Air Canada flight attendants’ strike, Donald Trump’s tariff policies, and an ongoing increase in capital expenditures (CAPEX). While these three developments are in fact risks for Air Canada, they are also opportunities for AC shareholders, as they are likely to trigger stock price gains if they blow over.
Shortly after that article was published, I thought about what I had written. While I believed that I had correctly identified the company’s three major risk factors, I felt I hadn’t emphasized their severity. Some of these risk factors were more serious than others. For example, the ongoing CAPEX increase, while a risk to near-term performance, is actually a long-term positive. Donald Trump’s tariff policies, however, are just plain bad.
When thinking about the article, I realized that a dedicated article on the single most serious risk facing Air Canada right now would make sense, in addition to the one already written. Accordingly, I’ll spend the rest of this article outlining what I think is the most serious risk factor to Air Canada, its shareholders, and even travellers, today.
Source: Getty Images
The Air Canada flight attendant strike
The possible Air Canada flight attendant strike is the biggest near-term risk to Air Canada today. Threatening to ground flights nationwide, it would immediately impact the company’s revenue and possibly impose costs on it in the form of compensating stranded travellers. If Air Canada’s flight attendants were to strike — which they could do as soon as this Saturday — then flights would likely be grounded. Regulations require that flights have a certain number of staff on board before they can take off, and the loss of flight attendants to the picket lines would place Air Canada planes below the required numbers.
The impact could be severe.
Most obviously, travellers who land midway through multi-leg journeys at the time when a strike is announced will probably not catch their connecting flights. Air Canada will have to compensate them by paying for a flight on a competing airline, but the disruptions to people’s travel plans and work engagements would likely be cripping.
Secondly, Air Canada itself would likely be impacted. All of the grounded flights would lead to a loss of revenue — potentially a big one if it lasted a long time. Also, Air Canada would be required to compensate passengers for flights on competing airlines.
The bottom line
The bottom line on Air Canada’s flight attendant strike threat is that it puts both the company and the country in danger. To the country, grounded flights pose the risk of economic and personal disruptions. To the company, a strike presents the double whammy of lower revenue and increased costs. In an age when Trumpian trade wars are already disrupting Canada’s economy, an Air Canada flight attendant strike is not what the company or the country needs.
