Air Canada will be just fine, this analyst says

National Bank Financial Capital Markets analyst Cameron Doerksen reaffirmed his “Outperform” rating and $26.00 target for Air Canada (Air Canada Stock Quote, Chart, News, Analysts, Financials TSX:AC) in an August 20 report, saying he remains positive on the stock despite the financial uncertainty created by the airline’s labour dispute (the report was issued before the sides reached an agreement). The average Street target is $25.85, according to LSEG data.

“Overall demand for air travel remains stable,” Doerksen said. “We also see the company enjoying some near-term year-over-year cost tailwinds based on current jet fuel prices and FX rates, partially offsetting the impact from the strike. Additionally, Air Canada shares still trade at a sizable discount to its closest peers, which is the key reason for our Outperform rating.”

The report was released before Tuesday’s announcement of a tentative agreement between Air Canada and its flight attendants. During the strike, Doerksen estimated the airline was losing about $60-million per day in revenue.

“Air Canada is not incurring costs to operate its schedule while grounded, but there are significant fixed costs that continue,” he said. “For some historical context, in the first quarter of the COVID shutdown, Air Canada’s EBITDA loss per day was approximately $9-million. Given that the company has its operations set for a quick restart, the EBITDA loss per day in the current shutdown is likely higher, possibly $25 million per day of shutdown (now at three days plus whatever the operational costs of the restart).”

Doerksen is forecasting $1.3-billion in EBITDA for the third quarter. He said lower jet fuel costs could help cushion the impact of the work stoppage, noting prices are currently about $0.85 per litre versus his forecast of $0.90 in Q3 and $0.95 in Q4. That difference alone could add roughly $185-million to his 2025 EBITDA estimate.

He added it is “hard to imagine” the strike dragging on. “Considering that the same union represents most flight attendants at other airlines, whatever contract structure Air Canada negotiates will be a template for future contracts at other carriers. As such, we do not see Air Canada being competitively disadvantaged.”

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