National Bank: target at 30$ (VS 29$)A little more optimism for summer travel rebound
While demand for air travel this past winter and spring remained highly depressed, based on published schedules and public announcements, Canada’s airlines appear to be more optimistic about demand during the peak summer season. Based on published scheduling data from OAG, in July Canadian airline industry domestic capacity (as measured by total seats) is set to be down 55.3% versus 2019 levels, but up 51.1% versus July 2020. More flights are also being added back in August and beyond by Canada's airlines.
Additional easing of travel restrictions still key to recovery
Although some travel restrictions in Canada have been relaxed, there is no clarity on the timeline for further easing that will allow for a more material increase in international travel. Most importantly, relaxation of restrictions on fully-vaccinated non-Canadians will likely be needed to support a meaningful increase in U.S. trans-border and other international flights for Air Canada.
New competition on the horizon?
While we believe Air Canada is well-equipped to compete with new competition, we believe investor concerns over planned significant expansions by Flair Airlines and Porter Airlines could be a headwind for Air Canada shares in the near-to-medium-term. Indeed, we see the potential for a market share land grab that could pressure pricing as travel demand recovers.
Maintain SP; target increased to $30.00 from $29.00
We made mostly modest changes to our Q2 and full-year forecasts, but are increasing our target based on a slight increase in 2023 estimates. We remain confident that demand for air travel will ultimately rebound and that by 2023 Air Canada can generate margins similar to pre-pandemic levels while also generating significant free cash flow that will help the company rapidly de-lever its balance sheet. However, we keep our Sector Perform rating for now as we await more clarity on further travel restriction easing. With a relatively modest 20% return to our target, we also believe that the current share price already reflects a meaningful recovery over the next several years