Despite a tanking stock, Air Canada may just bounce back - The Globe and Mail | Canada News Media
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Despite a tanking stock, Air Canada may just bounce back – The Globe and Mail

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The tails of two Air Canada aircraft sitting by gates at Toronto Pearson International Aiport, on Oct. 27, 2019. The airline’s share price has tumbled 33 per cent from its recent high on Jan. 13.

Fred Lum/The Globe and Mail

Among the stock market wreckage of the past week, Air Canada has been downright steamrolled. But the beaten-up stock may hold special appeal as a rebound candidate.

The airline’s share price has tumbled 33 per cent from its recent high on Jan. 13. Most of the damage has occurred over the past week, though, as concerns over the global spread of the new coronavirus (also known as COVID-19) and its impact on global economic activity grip investors.

The S&P/TSX Composite Index has fallen about 5 per cent since Feb. 19, but Air Canada has slumped 23 per cent. That makes it one of the worst-performing stocks in the index during the current sell-off. It has also fallen harder than its U.S. peers in the S&P 500 Airline Index during this period.

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The prospect of unsold seats and cancelled flights amid the spread of COVID-19 is clearly one of the key reasons for the airline sector’s sharp decline.

It’s a real fear. Late last month, Air Canada announced that it was suspending select flights to China – the hardest hit country by far – for the month of February. It extended the cancellations to April 10 in an announcement on Tuesday. COVID-19 breakouts in Italy and South Korea, both major economies, are no doubt raising concerns about additional suspensions and declining airline traffic.

To make matters worse, Air Canada had been a particularly hot stock within the airline sector before the downturn because of its rising profit margins and strong balance sheet. That made it vulnerable to a selloff.

The share price surged about 280 per cent from the start of 2017 to its high in January, even as regulators grounded its fleet of Boeing 737 Max planes over safety concerns, driving the stock’s valuation to a premium relative to other airlines.

Analysts have been overwhelmingly bullish on Air Canada, with 14 buy recommendations, just two holds and no sell recommendations, according to Bloomberg, leaving little room for error – or a pandemic. Swirling uncertainly over air traffic is now hitting sentiment toward Air Canada particularly hard.

But the stock is loaded with rebound potential.

CIBC analyst Kevin Chiang put some numbers on Air Canada’s worst-case exposure to COVID-19 by comparing the airline with Cathay Pacific during the 2003 SARS outbreak. China was the epicenter of that outbreak, which hit the Hong Kong-based airline particularly hard: Capacity fell 6 per cent, year over year, and passenger revenue fell nearly 17 per cent.

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If Air Canada’s fate is similar, Mr. Chiang estimates its 2020 revenue will fall to $16.5-billion from $19.1-billion in 2019. EBITDA (or earnings before interest, taxes, depreciation and amortization) would fall to $2.6-billion, which is $1-billion below the analyst’s current 2020 estimate.

It sounds grim. But here’s the opportunity: Mr. Chiang believes that the downside scenario is already reflected in Air Canada’s share price, which leaves a lot of upside opportunity if the crisis abates and sentiment improves. He expects that the stock can rise to $57 within 12 months.

The analyst pegs the downside at about $35 a share, slightly above Wednesday’s closing price of $34.92, after the stock fell another 6.6 per cent. That marks the lowest price since May, 2019, and down from a high of $52.09 on Jan. 13.

There are risks, of course, that the downside scenario gets worse. Apart from the volatile stock market, declining yields on U.S. government bonds are telegraphing slower economic growth, as factories close and trade networks grind to a halt in reaction to the COVID-19 outbreak.

What’s more, the inverted yield curve – three-month U.S. Treasury bills are yielding more than 10-year U.S. Treasury bonds – may signal an oncoming recession. That could weigh further on the stock market, and especially economically sensitive stocks such as airlines.

But if you’re looking for opportunities amid the stock market selloff and you believe that the COVID-19 outbreak will pass without long-lasting economic damage, Air Canada looks like a compelling bet.

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Carry On Canadian Business. Carry On!

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October 22, 2024

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Human Resources Officers must be very busy these days what with the general turnover of employees in our retail and business sectors. It is hard enough to find skilled people let alone potential employees willing to be trained. Then after the training, a few weeks go by then they come to you and ask for a raise. You refuse as there simply is no excess money in the budget and away they fly to wherever they come from, trained but not willing to put in the time to achieve that wanted raise.

I have had potentials come in and we give them a test to see if they do indeed know how to weld, polish or work with wood. 2-10 we hire, and one of those is gone in a week or two. Ask that they want overtime, and their laughter leaving the building is loud and unsettling. Housing starts are doing well but way behind because those trades needed to finish a project simply don’t come to the site, with delay after delay. Some people’s attitudes are just too funny. A recent graduate from a Ivy League university came in for an interview. The position was mid-management potential, but when we told them a three month period was needed and then they would make the big bucks they disappeared as fast as they arrived.

Government agencies are really no help, sending us people unsuited or unwilling to carry out the jobs we offer. Handing money over to staffing firms whose referrals are weak and ineffectual. Perhaps with the Fall and Winter upon us, these folks will have to find work and stop playing on the golf course or cottaging away. Tried to hire new arrivals in Canada but it is truly difficult to find someone who has a real identity card and is approved to live and work here. Who do we hire? Several years ago my father’s firm was rocking and rolling with all sorts of work. It was a summer day when the immigration officers arrived and 30+ employees hit the bricks almost immediately. The investigation that followed had threats of fines thrown at us by the officials. Good thing we kept excellent records, photos and digital copies. We had to prove the illegal documents given to us were as good as the real McCoy.

Restauranteurs, builders, manufacturers, finishers, trades-based firms, and warehousing are all suspect in hiring illegals, yet that becomes secondary as Toronto increases its minimum wage again bringing our payroll up another $120,000. Survival in Canada’s financial and business sectors is questionable for many. Good luck Chuck!. at least your carbon tax refund check should be arriving soon.

Steven Kaszab
Bradford, Ontario
skaszab@yahoo.ca

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Imperial to cut prices in NWT community after low river prevented resupply by barges

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October 22, 2024

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NORMAN WELLS, N.W.T. – Imperial Oil says it will temporarily reduce its fuel prices in a Northwest Territories community that has seen costs skyrocket due to low water on the Mackenzie River forcing the cancellation of the summer barge resupply season.

Imperial says in a Facebook post it will cut the air transportation portion that’s included in its wholesale price in Norman Wells for diesel fuel, or heating oil, from $3.38 per litre to $1.69 per litre, starting Tuesday.

The air transportation increase, it further states, will be implemented over a longer period.

It says Imperial is closely monitoring how much fuel needs to be airlifted to the Norman Wells area to prevent runouts until the winter road season begins and supplies can be replenished.

Gasoline and heating fuel prices approached $5 a litre at the start of this month.

Norman Wells’ town council declared a local emergency on humanitarian grounds last week as some of its 700 residents said they were facing monthly fuel bills coming to more than $5,000.

“The wholesale price increase that Imperial has applied is strictly to cover the air transportation costs. There is no Imperial profit margin included on the wholesale price. Imperial does not set prices at the retail level,” Imperial’s statement on Monday said.

The statement further said Imperial is working closely with the Northwest Territories government on ways to help residents in the near term.

“Imperial Oil’s decision to lower the price of home heating fuel offers immediate relief to residents facing financial pressures. This step reflects a swift response by Imperial Oil to discussions with the GNWT and will help ease short-term financial burdens on residents,” Caroline Wawzonek, Deputy Premier and Minister of Finance and Infrastructure, said in a news release Monday.

Wawzonek also noted the Territories government has supported the community with implementation of a fund supporting businesses and communities impacted by barge cancellations. She said there have also been increases to the Senior Home Heating Subsidy in Norman Wells, and continued support for heating costs for eligible Income Assistance recipients.

Additionally, she said the government has donated $150,000 to the Norman Wells food bank.

In its declaration of a state of emergency, the town said the mayor and council recognized the recent hike in fuel prices has strained household budgets, raised transportation costs, and affected local businesses.

It added that for the next three months, water and sewer service fees will be waived for all residents and businesses.

This report by The Canadian Press was first published Oct. 21, 2024.

The Canadian Press. All rights reserved.

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U.S. vote has Canadian business leaders worried about protectionist policies: KPMG

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October 22, 2024

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TORONTO – A new report says many Canadian business leaders are worried about economic uncertainties related to the looming U.S. election.

The survey by KPMG in Canada of 735 small- and medium-sized businesses says 87 per cent fear the Canadian economy could become “collateral damage” from American protectionist policies that lead to less favourable trade deals and increased tariffs

It says that due to those concerns, 85 per cent of business leaders in Canada polled are reviewing their business strategies to prepare for a change in leadership.

The concerns are primarily being felt by larger Canadian companies and sectors that are highly integrated with the U.S. economy, such as manufacturing, automotive, transportation and warehousing, energy and natural resources, as well as technology, media and telecommunications.

Shaira Nanji, a KPMG Law partner in its tax practice, says the prospect of further changes to economic and trade policies in the U.S. means some Canadian firms will need to look for ways to mitigate added costs and take advantage of potential trade relief provisions to remain competitive.

Both presidential candidates have campaigned on protectionist policies that could cause uncertainty for Canadian trade, and whoever takes the White House will be in charge during the review of the United States-Mexico-Canada Agreement in 2026.

This report by The Canadian Press was first published Oct. 22, 2024.

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