Will Air Canada (Air Canada Stock Quote, Chart, News TSX:AC) take off again?
The stock got to an all-time high earlier this year but has now been grounded for months as investors continue to worry about the future of air travel in a profoundly changed world.
Portfolio manager Michael Sprung says there’s certainly an opportunity for a huge returns with AC if and when the airline industry recovers but it’s a high-risk bet.
“Over the years, I have stayed away from the airline industry because I've never really liked capital intensive, highly unionized industries with very complex financial arrangements that obviously have such a massive swing with consumer take up of travelling and the function of fuel prices and so on,” says Sprung, president of Sprung Investment Management, speaking on BNN Bloomberg on Monday.
“So it's not a stock I would invest in. You’re looking at very high risk, high reward,” Sprung said.
Air Canada’s stock popped almost four per cent on Monday as the company announced that flights for Economy Class customers were reaching capacity due to flexible rebooking options. The announcement came as both Air Canada and Westjet said last week that they would be foregoing the practice of keeping middle seats empty as part of an effort to ensure social distancing would be maintained on flights as the COVID-19 pandemic stretches on.
Both companies appealed to recommendations from the United Nation’s aviation agency and the International Air Transport Association trade group which said that the spread of COVID-19 could be adequately combatted through other measures such as surface cleaning, pre-boarding temperature checks and requirements that masks be worn on board flights.
It’s one move by the airlines to try and get back on their feet after being virtually shut down for months, and with COVID-19 cases on the rise in the United States and other countries worldwide, it remains very unclear when customers will want to fly again at anywhere near the levels of just a half year ago.
Sprung says the lack of clarity could make for a buying opportunity for Air Canada if you’re willing to take the risk.
“If you believe that people are going to start traveling to a great extent over the next year or two — and they might well do so — then Air Canada could be a buy at current levels,” Sprung said.
“But you're really into a very high risk-high reward, chancy kind of investment with Air Canada, or with any of the global airline stocks for that matter,” he said.
In an interview with the Financial Post on Tuesday, Air Canada CEO Calin Rovinescu said the COVID-19 pandemic has been “hundreds of times worse” for the airlines than other events in recent history such as 9/11, SARS and the 2008/2009 financial crisis.
Rovinescu said that for the sake of the industry, the federal government needs to either relax restrictions on flying imposed due to COVID-19 or come up with more financial aid to companies like his.
“This is catastrophic territory,” Rovinescu said.