Air Canada stock is a no-fly zone, this investor says

You may like the look of Air Canada (Air Canada Stock Quote, Chart, News TSX:AC) at these prices but be warned, says portfolio manager David Baskin, the jury’s still out on when people will want to fly again.

Air Canada’s share price has been flying tantalizingly low for a number of months now, at least compared to where it was before COVID-19 hit. The stock and company were on a definite roll leading up to the pandemic, with the share price having gained an incredible 87 per cent over 2019 and the company posting record revenues of over $19 billion last year.

But as everyone knows, the bottom fell out for the airlines, and there’s been little sign of life since. Air Canada, which will be reporting its second quarter earnings on Wednesday, jettisoned about 20,000 employees — about half of its workforce — has reduced capacity by about 85 per cent. Expectations for the company’s Q2 are for revenue in the $420 million range, about one tenth its pre-coronavirus quarterly take.

But while other sectors of the economy have seen their stock prices recover much if not all of the lost ground, investors have been wary about the future of the airlines. For good reason, says Baskin of Baskin Wealth Management, who spoke to BNN Bloomberg on Tuesday.

“The problem with the airline companies is nobody has any idea when they're off to the races and back to anything that looks like normal,” Baskin said. “I don't know about you but I I haven't been on a plane in four months and I'm not planning to fly anywhere in the near future. And I think that's a sentiment shared by many.”

“At the end of the day, airlines have a lot of costs. They've got a lot of airplanes that
they're paying either debt financing or leases on, and that goes day by day whether they're
flying or not. They have a lot of pilots and other employees that they have to pay,
whether there's three people on the plane or 200,” he said.

“Air Canada been raising a lot of money. And even given their distress they were successful in raising a bunch of money. The last thing I think we heard was that they were burning cash at something like $20 million a day,” Baskin said.

Recent news on the COVID-19 front hasn’t helped the airlines, either, where exposure warnings keep popping up for both domestic and international flights. This week, for example, the BC Centre for Disease Control updated its list of flights on which a passenger has been found to have COVID-19, with 16 domestic and 15 international flights over the past two months. Passengers travelling on one of the domestic flights have been advised to self-monitor for COVID-19 (all international passengers must self-
isolate for 14 days).

Baskin says for the time being, at least, the risk to investors is just too great with a name like Air Canada.

“Buying into the airlines right now is a real act of courage. It's an act of tremendous optimism that the economy not only in Canada but around the world is going to get back on its feet sometime relatively soon,” Baskin said.

“I certainly hope that's the case, but I'm not prepared to bet my clients’ money on it,” he added.