Scotiabank on Air Canada ✈️✈️✈️✈️✈️ Air Canada (HQ, $23.76): good traffic prospects
Scotiabank draws very positive conclusions from Delta Airlines' investor day, including an excellent air traffic perspective that will also apply to Air Canada.
The U.S. carrier raised its forecasts for the second quarter and fiscal year 2023 while maintaining its long-term objectives due to a fairly optimistic outlook on the fundamentals of the air transport sector.
Delta, which is the largest American carrier, has taken note of the robust and continuous demand, including that of international travelers, which is on its way to a record summer, a trend that could extend until late autumn, says analyst Konark Gupta.
Delta increased its forecast profit range per share, increasing it from US$2 and US$2.25 to US$2.25 to US$2.25 and US$2.50. It also increases its revenue growth forecast (17%-18%, compared to 15%-17% previously), and its operating margin to 16% (14%-16% previously). The forecasts for the fiscal year are all at the top of the announced ranges, i.e. US$6 in earnings per share, 20% revenue growth and 12% operating margin.
The American airline believes that the growth in demand is sustainable and should last for several years. She notes that income in terms of percentage of the U.S. OBI is returning to the historical average, while employability remains strong and changes in population consumption habits favors air transport.
Delta also expects business class seats to account for 35% of total revenues in 2023, up 24% compared to 2014, an increase that comes from millennials who travel more and are willing to pay more to have an enhanced travel experience.
These findings from Delta translate into a very positive look for Air Canada, says the analyst.
Scotiabank maintains its forecast of outperformance of the Canadian air carrier's stock against its business line as well as its target price of $31.