Post by
lb1temporary on Feb 03, 2021 6:34pm
NBF: New travel restrictions push recovery to the right
Target lowered to $26.00 from $30.00
Underlying thesis intact
We upgraded Air Canada shares to Outperform in early December based on our view that multiple effective vaccines created more certainty around a recovery in air travel demand beginning later in 2021. Our fundamental position has not changed, and we do believe that pent-up demand and an eventual easing of travel restrictions will drive a return to some degree of normalcy in 2022.
But new travel restrictions push out a recovery
We suspect that new travel restrictions, including pre-departure testing and arrival testing plus related hotel quarantine for international travelers will persist beyond Q1 pushing a rebound in demand as well as cash flows for Air Canada to late in the year and into 2022. For the full-year 2021, we now assume AC's capacity is at 26% of 2019 levels versus our prior expectation of 45%. We still expect a modest rebound in demand to begin late in the year, but we now assume AC only flies 40% of 2019 capacity in Q4 versus a prior expectation of 55%. For 2022, we expect a slower ramp-up in capacity early in the year and now assume capacity is at 65% of 2019 levels versus our previous forecast of 75%
Cash burn higher, but liquidity still OK
Our prior forecast was for 2021 free cash usage of $1.5 billion, but we now assume FCF usage of $2.6 billion. We continue to believe that new bookings will begin to trend positively in the second half of 2021, but we assume free cash flow usage through to Q1/22. Even with our more pessimistic forecast for 2021, we forecast that Air Canada’s cash balance will bottom at ~$4.1 billion in Q1/22, comfortably above the $2.4 billion minimum cash Air Canada believes it needs.
Target lowered to $26.00 from $30.00
Our prior forecast was for a $934 million EBITDA loss in 2021, but we now forecast an EBITDA loss of $2.3 billion. The current consensus for 2021 is for positive EBITDA of $939 million, which is wildly optimistic, in our view. For 2022, we now forecast EBITDA of positive $2.2 billion, down from our prior estimate of $2.3 billion. As a result of our lower earnings expectations and higher cash usage, our target moves to $26.00 from $30.00.
Comment by
Ranger34 on Feb 07, 2021 7:14pm
Cases in Canada down 55% in last 4 weeks. Less than 2% immunized. Cases worldwide down 35% from highs. This isn't masks, lockdowns, travel restrictions. This is the beginning of herd immunity.