Air Canada is in great shape despite coronavirus, investor says

Investors afraid for their Air Canada (Air Canada Stock Quote, Chart, News TSX:AC) stock shouldn’t be too worried, according to Ryan Modesto, CEO of 5i Research, since the company is in great shape.

It’s more the airline space itself which is troubling, he believes.

“Over the long term, you have to give credit to Air Canada. They’ve done a really good job.” says Modesto, speaking to BNN Bloomberg on Wednesday. “As more of a style type of a position, we're just not fans of airlines in general.”

“They’re very sensitive to economic conditions and even to things like fuel prices. So as a rule we tend to kind of shy away from airlines. And with what's going on with the virus fears and the potential hit to the economy or just to travel and tourism in general, we’d probably give it a bit time and we wait on the sidelines here,” he says.

So much for all those sweet gains in AC over the past year.

The stock was singing along through 2019, finishing up a sparkling 87 per cent, with even the impact of the Boeing Max 8 crisis showing no signs of breaking AC’s stride. But the coronavirus outbreak has wreaked havoc on airline stocks worldwide over the past two months, including Air Canada, which is now down 31 per cent for the year so far.

This week, Air Canada announced it would be cancelling all flights between Canada and China until April 10, extending its measures in response to the outbreak of the virus known as COVID-19 which has killed thousands worldwide and has caused an economic strife worldwide as well as an ongoing plunge in stock markets this week.

Air Canada has also cancelled daily non-stop flights between Toronto and Hong Kong due to reduced market demand. The news comes a week after the company warned of financial strain in upcoming quarters due to the double blow concerning its 737 Max 8 fleet and the impact of COVID-19.

“We start 2020 with uncertainty from the on-going Boeing 737 MAX grounding and the constraints it imposes, as well as emerging economic and geopolitical risks and route suspensions resulting from the COVID-19 virus,” said president and CEO Calin Rovinescu, in the company’s fourth quarter and full-year 2019 financial report, delivered on February 18.

“However, our strong balance sheet, globe-spanning network that diversifies our revenue sources, brand strength as North America's Best Airline as rated by Skytrax, young fleet, dedicated and talented employees and nimble management team equip us to respond effectively to any challenges that come our way,” said Rovinescu.

For the Q4, Air Canada posted operating revenue up five per cent to $4.43 billion and adjusted net income of $47 million or $0.17 per share, down from $55 million or $0.20 per share a year earlier. Analysts had been expecting $4.53 billion in revenue and earnings of $0.38 per share.

Modesto said the future still looks good for Air Canada despite the current negatives.

“Longer term, the company has really driven value for shareholders and there's not many competitors in the Canadian space, so we'd be okay with it,” Modesto added. “It’s just not not our type of company.”