Shares of Air Canada (TSX: AC) has grown by approx. 34% in the last six months. However, it is still down around 52% in a year, making it an attractive investment. Investors’ optimism about the vaccination continues to support its stock. But before you buy Air Canada shares, let’s focus on its key indicators to determine if you should invest in it at the current price level.
Weak Q4 performance
Air Canada disappointed with its Q4 performance. Its revenues remained weak, reflecting lower demand among stricter lockdown measures. Air Canada reported revenue of $ 827 million, reflecting a decrease of $ 3.6 billion compared to the previous year. Its available seats miles (a measure of passenger capacity) reduced by 77%. In addition, revenue for the passenger environment (a measure of passenger traffic) fell by around 89%.
While lower revenues remained a drag on the bottom line, Air Canada’s operating losses increased quarterly. The airline reported an operating loss of approx. 1 billion USD in the 4th quarter compared to 785 mill. USD in the 3rd quarter and an operating income of 145 mill. Dollars in previous years.
Air Canada’s net debt increased by approx. 75% year over year to $ 5 billion. In the 4th quarter. It reported a net cash burn of 1.4 billion. $ Including leasing and debt service charges and net investments.
Challenges continue in the short term
Despite the development of the vaccine, the widespread vaccination is likely to take some time, which is likely to hurt Air Canada’s economic performance in the short term. Air Canada expects to reduce its capacity by approx. 85% in the first quarter of 2021, which is higher than an 83% reduction in the previous period.
The lower capacity projection reflects recently announced tighter travel restrictions, including the suspension of flights to Mexico and the Caribbean. In addition, the serious travel measures require a negative COVID-19 PCR test before departure for international travelers.
Guidance on lower capacity indicates that Air Canada may continue to report lower revenues while its operating losses may remain high. The continued decline in advance ticket sales suggests that Air Canada’s economic performance may remain weak in the short term.
It estimates that its net cash burn may be in the range of $ 1.35 billion and $ 1.53 billion, including leasing and debt expenses and net investments.
Need to buy Air Canada shares?
Air Canada shares are one attractive long-term game, despite the short-term challenges. I think the widespread vaccination, especially in the second half of the year, is likely to facilitate lockdown measures and increase passenger demand.
Air Canada drastically reduced costs in 2020, including reducing the workforce and permanently retiring 79 older aircraft from the fleet. The recovery in demand and lower cost base is likely to support its long-term viability and drive its stock higher. In addition, Air Canada is expected to report increasing freight revenue in 2021 and beyond. Higher demand from e-commerce companies and specialized e-commerce delivery services is likely to lead to its freight revenue and increase its economic performance in the coming years. The disadvantage of the Air Canada share remains low, while the recovery in demand is expected to lead its share higher in the next two to three years.
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