Business & Investment

Should Air Canada shares be on your purchase list now?

Air Canada (TSX: AC) Investors who missed the rally earlier this year have been wondering if the pullback went well, as it has fallen sharply in recent months. Let’s look at the current situation and see if AC stocks are a good buy for TFSA. RRSP Currently portfolio.

Recovery of air travel

Fully vaccinated international travelers can visit Canada. This is great news for family and friends who haven’t had a chance to meet each other for the last 18 months. This is good news for Air Canada as well, with the hope of resuming long-haul flights and recovering profitability.

The company has just announced the resumption of direct flights to India after the government lifted the ban on flights to India. Air Canada will continue to increase capacity to international locations as demand recovery and staffing challenges are resolved.

Air Canada reduced its workforce by more than 50% last year. Now that air travel restrictions have been lifted, the company is struggling to get enough people to get back to work. This is an industry-wide problem that can take a long time to resolve and can delay the launch of new flights, even if people are willing to travel.

The airline also reports strong winter bookings for sunny destinations. On the demand side, things seem to be going in the right direction for leisure travel.

Business trip concerns

It may take some time for lucrative business travelers to return to their comfortable seats in front of the plane. Most people agree that face-to-face meetings are generally more effective than doing business in virtual calls over a computer screen. However, in the last 18 months, companies have realized that they can trade without spending a fortune on travel expenses for executives and sales reps.

Due to the increasing COVID-19 infection in the United States and Canada due to the epidemic of delta variants, many companies had to postpone their return to the office until 2022. As a result, it could be mid-next year before business travelers are comfortable enough. Start hitting the sky on a regular basis.

Another deterrent to the business crowd could be the long check-in delays caused by vaccine validation.

What is unknown to Air Canada and its investors is whether all business trips will fully recover to 2019 levels. Business class seats traditionally promote a significant portion of the airline’s profits, and investors need to adjust their expectations if businessmen stay home.

Fuel cost

Rising oil prices are pushing up the cost of jet fuel, just as airlines are starting to recover. Fuel costs account for 20% of airline costs, so there is a risk that the entire plane may not be profitable unless the airline is able to increase ticket payments to travelers.

settlement

The number of air passengers surged in July and August of this year. This could lead to higher-than-expected results in the third quarter of 2021, and investors may look to Air Canada’s quarterly net cash burn.In 2021 Q2 Report Air Canada said it expects net cashburn to improve from $ 8 million per day in the second quarter to $ 3 million to $ 5 million in the third quarter. The airline reported a net operating loss of $ 1.3 billion in the second quarter, so there is still work to be done before the company returns to the black.

Should I Buy AC Stocks Now?

Air Canada is trading at nearly $ 23.50 per share at the time of writing. This is down from the 2021 high of $ 31, but has risen by nearly 50% in the last 12 months. The good news for the third quarter results is that improved cashburn could raise stock prices by the end of the year, but even if capacity increases in the coming months, the road to profitability is expected by the market. Can be longer than.

That’s why I look for other opportunities in today’s market.

This article represents the opinion of a writer who may disagree with the “official” recommendation position of MotleyFool Premium Services or Advisors. We are Motley! Asking investment papers, even our own, can help us think critically about our investment and make decisions to be smarter, happier, and richer. As a result, we may publish articles that may not match recommendations, rankings, or other content. ..

Motley Fool does not have a position in any of the listed stocks. A stupid contributor, Andrew Walker, does not have a position in any of the shares mentioned.

Should Air Canada shares be on your purchase list now?

https://www.fool.ca/2021/09/28/should-air-canada-stock-be-on-your-buy-list-now/ Should Air Canada shares be on your purchase list now?

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