The future may be bright for Air Canada (Air Canada Stock Quote, Chart, News TSX:AC) but it’s a mug’s game trying to guess when their planes will be full again.
So says portfolio manager Christine Poole of GlobeInvest Capital, who advises investors to steer clear of the airline sector as a whole.
“We don’t invest in the airline space generally just because I think it’s such a sickly business with huge fixed costs base, and many times those costs are beyond the control of the carrier,” says Poole CEO and managing director at GlobeInvest, who spoke on BNN Bloomberg Tuesday.
“And for Air Canada, we’re not buyers. Obviously, the air travel recovery has been prolonged and eventually I do think it will come back and with Air Canada, the air transportation space in Canada has less players so they’re quite dominant, so they will fully participate in that. But I just feel that it’s very difficult to forecast, right now, when that’s going to happen.”
It’s been a long six month for Air Canada and the rest of the airlines worldwide, as COVID-19 has wreaked havoc on the travel industry and kept customers and planes virtually grounded since March.
How bad has it been? Revenue is down 90 per cent from a year ago with total passengers carried also down 96 per cent. For AC’s most recent quarter, its Q2, delivered in late July, the company posted an operating loss of $1.55 billion, with revenue down to $527 million compared to $4.21 billion a year earlier.
Air Canada is struggling to get bums in their seats, putting pressure on the federal government to relax restrictions on travel and now offering travellers free medical insurance for sun destinations in Mexico and the Caribbean, even as the Canadian government advises against non-essential travel in and out of the country.
The company has also been advertising travel to the United States for both “leisure and business,” according to a Global News report which found that a recording on Air Canada’s customer booking telephone line encourages customers to follow the airline’s step-by-step guide to book to the US “to reunite with friends and relatives.”
The airline has been scrambling to stay afloat, raising a whopping $5.5 billion in new equity, debt and financings since the pandemic began, bring the company’s liquidity as of June 30 to over $9 billion. Still, AC’s net cash burn came in at $1.7 billion for its second quarter, meaning it’s now a matter of months before that cash will be all gone.
Poole says investors looking for a good place to park their money should look elsewhere, at least for now.
“Canada has maintained very stringent rules about how one enters the country in terms of quarantine and that has really served to hamper the recovery in traffic,” Poole said. “So, we’re not buyers of Air Canada. We, we just think the sector is generally difficult. I don’t see it as a long-term secular growth area in terms of making money.”
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