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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

Post by lb1temporaryon Feb 03, 2021 6:34pm
209 Views
Post# 32465887

NBF: New travel restrictions push recovery to the right

NBF: New travel restrictions push recovery to the rightTarget 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.



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