Fidelity Sees Value in Air Canada 2018 2019 2020
Dec Mar Jun Sep Dec Mar Jun Airline AC 8.1 13.8 16.2 15.1 11.6 12.7 30.0
LUV 8.5 6.7 5.1 4.8 4.9 6.1 6.1
DAL 9.3 5.5 5.7 8.2 5.5 8.1 8.1
UAL 2.6 2.1 1.6 1.9 2.5 1.5 1.5
AAL 13.8 11.7 10.7 9.5 12.1 0.4 0.4
The above table shows Fidelity’s holdings (in millions of shares) of the five major NA carriers since Q4 2018. Between Q4 2018 and Q1 2019, Fidelity reduced its holdings in the four U.S. carriers while increasing its holding of Air Canada, from 8.1 million shares to 13.8 million. The likely reasons for this was the Joint Venture initiative to place Aeroplan back under AC’s umbrella in early January 2019 and the subsequent significant fall in the Leverage Ratio. Throughout 2019, Fidelity increased, then decreased its holdings at year-end.
In 2020, Fidelity increased its holdings in only three of the five airlines, DAL, LUV and AC, while reducing its holdings in UAL and AAL.
On June 26 ,2020 Fidelity filed an
Early Warning Report Under the Alternative Monthly Reporting System Content of the document include the following statements:
- Fidelity holds 30,027,853 Voting Shares representing approximately 10.12% of the outstanding shares of that class. Such securities are owned by funds and accounts for which Fidelity exercises investment discretion.
- The Voting Shares of AIR CANADA INC were acquired in the ordinary course of business, for investment purposes only and not with the purpose of exercising control or direction over AIR CANADA INC. Fidelity may from time to time, on behalf of funds or accounts it manages, acquire additional Voting Shares or related financial instruments, dispose of some or all of the Voting Shares or related financial instruments, if any, they hold or continue to hold Voting Shares or such related financial instruments, if any.
Fidelity has a strong research team and they know the NA airline industry well. I believe they chose to increase their holdings in AIr Canada to over 10 percent for many reasons, some of which are listed below:
- Huge upside to Air Canada’s loyalty program in the next five to seven years and better visibility now on loyalty program valuations (see link below – Limited Time Sale)
- Significant upside to 6th freedom flying (geographic advantage, premium products, extensive global network)
- Highest liquidity level entering the covid-19 crisis
- Dominant carrier in Canadian market
- Youngest fleet of all the five carriers (after planned retirements of older aircraft) along with fuel and operating benefits that come with a young fleet
- Movement away from aircraft leasing towards ownership which impacts favourably on ROIC
- A sound business strategy and a proven track record of debt reduction and ROIC improvement
Here are three links that provide additional background into Air Canada that you may want to review:
Aeroplan
https://stockhouse.com/companies/bullboard?symbol=t.ac&postid=30509274 Limited Time Sale – Air Canada
https://stockhouse.com/companies/bullboard?symbol=t.ac&postid=31152465 Where are the planes?
https://stockhouse.com/companies/bullboard?symbol=t.ac&postid=31187809