Air Canada could come back even stronger than before, this investor says

Look for Air Canada (Air Canada Stock Quote, Chart, News, Analysts, Financials TSX:AC) to return to pre-COVID form both operationally and from a share price perspective, says Jennifer Radman, head of investments at Caldwell Investment Management, who says investors might want to jump in on a stock that’s still about 40 per cent off its previous highs.

Air Canada hit a low of $12.15 in March of last year as global air travel ground to a halt in the wake of the spiraling pandemic and while the stock stayed low for much of 2020, AC along with the other airlines started taking off in November following news of positive test results on COVID vaccines.

Since then, Air Canada has been gradually lifting upwards and is currently trading in the $28 range. That’s still well off its high of $50 set in January 2020, but Radman says there’s likely sector-wide tailwinds that’ll lift AC higher over the coming months.

“When you’re talking about the Air Canada thesis you’re looking at some of the markets that are open and the trends there and you’re seeing very good bookings, very good load factors and really good prospects for flights to continue to be added to the market,” said Radman, speaking on BNN Bloomberg on Tuesday.

“So, all that is moving in a positive direction, certainly, as I think most people are wanting to go back [to air travel],” she said.

“The business travel component I think is a bit of a question mark but that probably ebbs and flows in that when some companies set the precedent to start traveling again it’s going to be hard for other companies to not match that and get face-to-face time with their clients. It’s gradual,” Radman said.

Air Canada announced on Monday new international flights to its expanding cargo services business, with trips now on schedule for Miami, Quito, Lima, Mexico City and Guadalajara.

Last year, the company started using some of its retired Boeing 767 passenger aircraft to haul freight, in attempt to take advantage of the booming air cargo sector which has benefitted from the COVID-19 pandemic and its stay-at-home economy.

“These freighters will provide long-term stability and growth for our cargo customers, in particular the freight forwarding community who require reliable air freight capacity year-round, said Jason Berry, Vice President, Cargo at Air Canada, in a press release. “They will allow us to continue building on the success of our cargo-only flights and are an important part of our future growth.”

Air Canada reported operating revenues down 80 per cent to $729 million in its most recent quarter, the company’s Q1 2021 delivered in early May. The company said it operated more than 7,500 all-cargo flights since March 2020 and 2,362 such flights over the first quarter 2021 alone.

Radman says there are still uncertainties surrounding air travel’s return, post-COVID, but Air Canada’s performance leading up to the pandemic bodes well for a return to form in the months and years ahead.

“It’s interesting because a lot of stocks that are in these early cycle plays are way higher than they were pre-COVID and yet their earnings really haven’t recovered, [but] the airlines, I guess, they’ve not been given the benefit of the doubt,” Radman said. “It’ll be interesting to see how costs do. I think [Air Canada] thinks they’ll do better, and so, from a profitability standpoint the ability to get to pre-COVID profitability before all that traffic returns is certainly an attractive prospect,” she said.

“Prior to the COVID crisis, Air Canada was really executing very well on a lot of company specific things, so you get back to that [idea] that companies that can be stronger coming out of a crisis than going in, and we think that fits Air Canada,” Radman said.

“Certainly, there are still risks with it — new [coronavirus] strains and all that stuff — and when will Canada actually reopen, but with 40 per cent off the high you’re still getting some cushion and potential upside there,” she said.

AC’s operating loss for the first quarter 2021 hit $1.049 billion compared to a loss of $433 million a year earlier and net cash burn was $1.274 billion or about $14 million per day on average.

But the company still sported unrestricted liquidity of about $6.6 billion as of March 31, a testament to the company’s financial strength, which in April got a further shot in the arm in the form of a $5.9-billion federal government aid package.

That package came with requirements that Air Canada issue refunds to passengers who had booked flights since February 2020 but did not fly, as well as a return of air service to some Canadian locales which lost their service during the pandemic.