Business & Investment

Why Air Canada Stocks Are Risky Purchases Today

Air Canada (TSX: AC) Investors suspect that Air Canada’s share price has risen too much, despite positive vaccine news in recent months.

Impact of Vaccine Optimism on Air Canada Strains

Air Canada traded near $ 15 per share in early November. A month later, speculators raised the stock price to $ 27. Positive test results on major COVID vaccines have generated new investor enthusiasm for Air Canada and other airline stocks. With the approval of the two vaccines by the United States, the United Kingdom, Canada and Europe and the subsequent rollout of the vaccine, the share price remained high, but the share price returned to $ 22 by the end of December as traders made a profit.

Vaccines are the key to the recovery of the aviation industry. However, it could be the end of the summer of 2021 before the public has access to the shots. This means that travel restrictions can be in effect for several months.

The· Stock market Always positive. Airlines should see the country open its borders later this year. Travelers who want to visit relatives or spend their vacations can spike their bookings. This will allow Air Canada to significantly increase its revenue to stop cash burns.

With that in mind, stock prices could rise somewhat from the November lows, but it may be premature to buy.

COVID surge threatens recovery

The second wave of COVID has forced a new blockade in most developed countries. The UK has announced a national blockade to combat the epidemic of new COVID variants. Researchers have recently expressed concern that another variant of South Africa may not respond to current vaccines.

Cases of COVID continue to increase in continental Europe and the United States. Japan closed its border with foreigners last week.Some Canadian states have undergone strict blockades, and the government is now for all travelers. COVID test result is negative Before boarding the plane to the country. Two weeks of quarantine upon arrival will continue.

This means that Air Canada and the broader aviation industry are facing a tough winter.

Impact of oil prices on Air Canada stocks

Fuel costs account for 15-20% of airline costs. As a result, rising oil prices can have a significant impact on margins. Brent crude is currently trading at US $ 53 per barrel, with WTI hitting US $ 50 for the first time since February last year. If oil prices continue to recover until 2021 Jet fuel It may skyrocket.

This will put Air Canada in a difficult place. The company may need to raise the price of the ticket to explain the extra fuel costs. Canadian travelers already think tickets are expensive. As a result, demand can decline.

Will business trips recover?

Beyond the pandemic, the aviation industry may see a permanent decline in business trips. In the past, executives and sales reps who traveled around the world to visit customers had to meet between online platforms in 2020. The success and effectiveness of virtual conferencing has surprised many. Analysts wonder if the business trip will recover completely.

Expensive seats in front of the plane create a large margin for Air Canada and other airlines with international flights. If business trips do not recover, investors will need to secure slimmer profits when capacity finally recovers.

What is the earnings of Air Canada shares?

Air Canada shares are trading at nearly $ 23 per share at the time of writing. This has decreased by about 50% since the beginning of January last year. This may seem cheap, but the company has run out of about $ 1 billion in net cash per quarter, from the very profitable ones. Management reduced more than 50% of its staff in 2020 and abandoned dozens of planes.

Capacity is not expected to recover for at least three years. Meanwhile, Air Canada is trying to negotiate a favorable bailout from the government.

With all of the short-term headwinds and uncertain market conditions, stocks look expensive. Other opportunities in the market may be better bets now.

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The stupid contributor Andrew Walker has no position in any of the shares mentioned.

Why Air Canada Stocks Are Risky Purchases Today

https://www.fool.ca/2021/01/06/why-air-canada-stock-is-a-risky-buy-today/ Why Air Canada Stocks Are Risky Purchases Today

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