Is Air Canada’s stock price heading towards $15 per share?

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What happened?

The actions of Air Canada (TSX:AC) plunged well over 5% on Monday morning after losing nearly 9% of its value over the previous two weeks. By comparison, the TSX Composite Index was down 2.5% this morning. With that, Air Canada’s share price is now hovering at its lowest level since November 2020, at $19.03 per share, with losses of more than 21% since the start of the quarter.

So what?

Today’s Air Canada stock sell-off apparently has nothing to do with company-specific negative news. Instead, it’s the result of a broader market sell-off amid growing investor concerns about a recession.

On Friday, US inflation numbers came out much hotter than expected, hitting their highest level in more than four decades. The latest data increases pressure on the Federal Reserve to take more aggressive monetary policy action by raising key interest rates at a faster pace. In a scenario where inflation figures remain consistently high and rising interest rates continue to hurt consumers’ purchasing power, the possibility of an economic recession increases.

Air travel or air travel is a cyclical industry that falls under the consumer discretionary sector. In tough economic times like a recession, consumers tend to cut back on non-essential and discretionary spending like air travel. This is one of the main reasons why the growing possibilities of a recession are seriously hurting airline stocks, including Air Canada. With that, AC stock is now down around 10% in 2022 so far.

Now what?

Air Canada remained one of the most sought-after stocks by investors between 2016 and 2019, as it generated an outstanding positive return of 375% over those four years. However, COVID-19 suddenly changed its fundamentals at the start of 2020, as the pandemic forced most countries around the world to impose closures and restrictions on air travel. These restrictions have continued to severely affect the finances of airlines like Air Canada even in 2021, sending its shares down 7.2% that year.

Amid easing restrictions, Air Canada’s overall air travel demand and advance bookings began to show optimistic signs in the first quarter of 2022. However, problems at the largest airline in passengers in Canada do not seem to be over anytime soon. While Russia’s invasion of Ukraine has boosted crude oil prices, investors still fear soaring jet fuel prices could steal Air Canada’s profits. Although this negative factor remains intact, growing fears of a possible recession are now clouding the outlook for air transport demand.

Air Canada continues to strengthen its international cargo and cargo network. However, these efforts may not lead to its financial recovery if demand for passenger air travel begins to decline again. In such a scenario, Canada’s national carrier’s post-pandemic financial recovery could be further delayed as it attempts to navigate through new emerging challenges. This is why the possibility of Air Canada shares heading towards $15 per share in the coming months cannot be completely denied.

Karen J. Nelson