Why is Air Canada so cheap?

Andrew Willis: Air Canada (AC) reported mixed earnings last week, with sales in line with consensus estimates, but per-share losses ahead thrice higher than expected. Are staff shortages and cancellations taking a hit? Maybe, but other supply issues, like fuel costs, certainly hurt as well.

However, these factors may well be temporary. Consider the demand side. Passenger revenue reached 79.3% of 2019 levels, while advance bookings – including those that were canceled or were canceled – reached 94% from 2019 levels. Stock analyst Burkett Huey expects Air Canada’s fundamentals to recover with reduced border restrictions, with this year being the year international travel finally resumes in earnest.

As demand grows, there will be ongoing barriers to reaching 100% 2019 levels, including the search for new employees in a tight labor market, and wage inflation likely to squeeze margins. But how relevant is this for long-term investors? It may be the speculators who are selling.

For Morningstar, I’m Andrew Willis.

Lee J. Murillo