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Air Canada T.AC

Alternate Symbol(s):  ACDVF

Air Canada is an airline company. The Company is a provider of scheduled passenger services in the Canadian market, the Canada-United States (U.S.) transborder market and the international market to and from Canada. It provides scheduled service directly to more than 180 airports in Canada, the United States and internationally on six continents. The Company’s Aeroplan program is Canada's premier travel loyalty program, where members can earn or redeem points on the airline partner network of 45 airlines, plus through a range of merchandise, hotel and car rental rewards. Its freight division, Air Canada Cargo, provides air freight lift and connectivity to hundreds of destinations across six continents using its passenger and freighter aircraft. Its Air Canada Vacations is a tour operator, which is engaged in developing, marketing, and distributing vacation travel packages in the outbound/inbound leisure travel market. Air Canada Rouge is Air Canada's leisure carrier.


TSX:AC - Post by User

Bullboard Posts
Post by Rouge10on Mar 06, 2020 9:27am
205 Views
Post# 30774582

AC Vs other airlines

AC Vs other airlinesAC is a probably financially the most stable airline in North America and in the top few globally. 

1. Outstanding shares: Approx. 262M. Very low compared to others, except United which has approx. 248M shares. Hence, a great opportunity to buy back if cash position is strong.

2. Leverage ratio: 0.8 (As of Sept 2019). Probably the best ratio in industry. Even United is more than 3.0. It means United won't be able to use the opportunity to buy their shares in 40s/50s as much as Air Canada will be able to buy back in 20s/30s. i.e. if it does touch 20s. 

3. Credit Card: Year 2020 will be first mature year for credit card based earnings for AC. Even if airline pax revenue takes a big hit from COVID, credit card revenue will be huge cushion (NI of approx. $0.5-$1.0B) based on earlier posts by me, OTB and Airline Investor. For other airlines most of this revenue segement matured in 2017-2019. 

4. International travel: Yes, AC has taken 8%-9% capacity hit for Asian market but for how long? If that hit is for 6 months (Feb - July), you can expect the net capacity hit to be around 4-5% annually and respective revenue accordingly. In next phase of possible impact in North America, it is yet to be seen how the COVID will grow and impact business. If the spread in Canada behaves differently than US, almost 40-45% of AC revenue will be impacted differently than lets say 50-70% of US airlines and almost 99% for South West. Refer to Airlineinvestors posts, you can check the mitigation strategies to reduce annual impact, which all airlines will follow. 

5. Capex: It has been discussed many times before that AC is on tail end of their capex whereas other airlines are either in early or in middle phase of their multi year capex plan. 

6. Air Transat: Does not fly to Asia. Hence, their impact will be limited to Europe and North America. When the deal close later this year, it will be additional tool for AC to manage capacity/demand.

7. Fuel: Fuel price is down. AC is not locked in fuel hedges, where as many other airlines are locked in. Great opportunity to lock the hedges at lower prices. With reduced flying (flight frequency and not passengers), fuel spend is eliminated. Other cost will have to managed and resdistributed. Hiring plans (Pilots, FAs. Mechanics, Landing fee, Air space fee, Contracted flight management at airports, etc...) can be either pushed out or is a variable cost. 

8. 737 Max: Few months back some airlines had the advantage of not having 737 Max in their fleet. Now the advantage is for airlines with 737 Max as they can expect additional cash payment in 2020 (or lower cost in coming years). Not to mention of delayed impact of lowering demand because of constrained capacity going in. Again AC stands out in this case. 

9. CAD $$: Lowering CAD against US$ creates both pros and cons. If their fuel spend is impacted negatively, their point of sale revenue in US market increases. Also increase in the demand for 6th freedom traffic as US PAX will take cheaper (and better experience) tickets via Canada to wherever else they want to go in the world. Flying is not stopping all together.

10. Other airline specific reasons.


Forecast: Make your predictions of stock price. It might go lower. It has done this in the past, viz. going down to $21 from high of $29 etc. SP will bounce back for only those financially stable airlines which are able to weather the storm. Hard to predict when, but let's say COVID is brought under control in in next few months (let's 3-6 months), then you will see the uptrend accordingly. 
Bullboard Posts