Why Is Air Canada Stock So Cheap?

Andrew Willis: Air Canada reported mixed earnings last week, with sales in line with consensus estimates, but losses per share coming in at three times higher than expected. Are staffing shortages and cancellations taking a bite? Maybe. But other supply issues like fuel costs certainly hurt as well. However, these factors might well be temporary.

Consider the demand side. Passenger revenue came in at 79.3% of 2019 levels, while advance bookings, including those that cancelled or were cancelled on, came in at 94% of 2019 levels. Equity analyst Burkett Huey expects Air Canada's fundamentals will recover with reduced border restrictions, with this year being the year that international travel finally resumes in earnest.

As demand picks up, there will be ongoing obstacles to reaching 100% of 2019 levels, including finding new employees in a tight labor market and wage inflation that is likely to cut into margins. But how relevant is this for long-term investors? Perhaps it's the speculators that have been selling.

For Morningstar, I'm Andrew Willis.

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