Aviation and Airlines (Commonwealth Union) _ Air Canada (TSX:AC) has been a popular choice among Canadian investors since the pandemic began, but its stock is still trading well below pre-pandemic levels. Despite hopes for a recovery, the airline’s shares remain cheap, leading to questions about its future prospects. The travel industry, including Air Canada, was hit hard by the pandemic, with international and domestic travel coming to a halt. This had a severe impact on Air Canada’s revenue, which dropped by almost 90% in the first quarter of the pandemic compared to the previous quarter.
To understand why Air Canada’s stock is trading at a discount, it’s important to consider the airline industry’s competitive nature and the need to generate significant revenue and profit. Airlines typically increase capacity and keep planes in operation to maximize revenue. However, the pandemic disrupted these operations, causing Air Canada to accumulate debt and dilute shareholder value by selling stock to raise capital.
Although the stock price appears cheaper than before the pandemic, Air Canada’s enterprise value, a measure of total company value, is actually higher than it was in 2019. The airline still carries a significant amount of debt, which needs to be paid down. While the industry has shown signs of recovery, rising costs due to inflation have affected profitability.
Analysts expect Air Canada’s revenue to grow by 20% in 2023, reaching a new high. However, the company still needs time to generate consistent profits and strengthen its balance sheet. As a result, the stock’s potential for a meaningful recovery in the near term seems limited.
It’s worth noting that this analysis does not include Air Canada as one of the top investment opportunities recommended by the Motley Fool Stock Advisor Canada. The airline industry, including Air Canada, has long-term potential, but until the company can demonstrate consistent profitability and improve its financial position, the upside for its stock price remains uncertain.
Key Words:
- Air Canada (TSX:AC)
- Stock performance
- Pandemic impact
- Revenue drop
- Debt accumulation
