As of recent, stock markets have been increasingly volatile due to the wide spread of coronavirus. New reports from January 30, 2020 now indicate that 34 airlines have canceled flights to airports in China (Pallini, 2020). These actions due to coronavirus spreading globally.
Air Canada, one of the 34 airlines to have canceled flights, did so on Tuesday January 28, 2020 (Pallini, 2020). It is without doubt that the coronavirus becomes a factor for airlines moving forward. The cross contamination and the movement of epidemics such as coronavirus can spread quickly in airports. To date, the virus has killed 132 people and has infected around 6,000 people in China and worldwide. However, shortly after Air Canada issued that it will be shutting down flights to parts of China, they had regretted their actions. BNN Bloomberg writes, “Air Canada regrets this situation and apologizes for the serious disruption to our customers’ travel plans” (Press, 2020). These actions are now leaving customers with options on other carriers or a full refund, issued by Air Canada.
Not long before the coronavirus outbreak, many investors were becoming skeptical over Air Canada’s stock moving forward. Some of which induced, Cowen Investment Bank analyst Helane Becker. Becker downgraded Air Canada stock in early January of 2020. Becker outlined that Air Canada is now a market performer rather than its original outperformer recommendations. Thus, setting the price target for Air Canada shares to $51 per share. Becker later described that risks associated with the takeover of Transat AT could pose problems for Air Canada’s brand sustainability (BNN Bloomberg, 2020). With Transat AT having limited growth and a week balance sheet in the past, it could take time for earnings of this acquisition to be shown. Overall, Becker believes Air Canada to be a “victim of their own success”, as the stock saw an 87 per cent gain last year (BNN Bloomberg, 2020). Overall, with this growth over last year, it is a challenge for management and Air Canada has a whole to continue to provide excellence. Some of these new acquisitions could take a long time before they become profitable.
AC — Share Update:
With most of the market predicting the potential headwinds for Air Canada moving forward. The coronavirus has now effected the valuation of Air Canada and will continue to. As of Monday January 27, 2020 shares of Air Canada closed the market at $47.18. As of writing, Air Canada shares open the market on Friday January 31, 2020 at $44.5. Thus, representing a decrease in value of -6.02% over the course of a week. Below is a stock chart indicating last week’s trend as the coronavirus news outbreaks.
Conclusion — Impacts for Air Canada Moving Forward:
Overall, the cancelation of many direct flights to China has and will have a large impact on Air Canada. With Air Canada beginning Canada’s largest domestic and international airline having direct flights to the mainland of China until February 29, 2020. Over the past decade Canada has found vast opportunities in serving the Asian markets. Airline’s like Air Canada have been serving flights from China to Canada and have seen a huge impact. As of 2018, 757,000 passengers have visited Canada from China. (Press, 2020) It will be interesting to monitor how long the temporary session will last. As for Air Canada’s share price, Air Canada will post its fourth quarter earnings results on Tuesday, February 18, 2020. (Staff, 2020) Investors will monitor these results closely and find out how the coronavirus and new acquisition of Trans At will continue to play out for Air Canada moving forward.
1) BNN Bloomberg. (2020, January 3). ‘Victim of their own success’: Air Canada downgraded by analyst after stock surge – BNN Bloomberg. Retrieved January 31, 2020, from https://www.bnnbloomberg.ca/victim-of-their-own-success-air-canada-downgraded-by-analyst-after-stock-surge-1.1368919
2) Pallini, T. (2020, January 29). 16 airlines have canceled flights to China amid coronavirus fears so far. Retrieved January 30, 2020, from https://www.businessinsider.com/airlines-canceling-changing-flights-to-china-amid-coronavirus-fears-2020-1
3) Press, T. C. (2020, January 29). Air Canada suspends all direct flights to China as virus spreads – BNN Bloomberg. Retrieved January 31, 2020, from https://www.bnnbloomberg.ca/air-canada-suspends-all-direct-flights-to-china-as-coronavirus-spreads-1.1381510
4) Staff, M. B. (2020, January 31). AC Earnings Date, Forecast and Report (Air Canada). Retrieved January 31, 2020, from https://www.marketbeat.com/stocks/TSE/AC/earnings/
James Cromack is a 2019 Stewart Lockie Gibson Scholarship holder and is currently pursuing a BCOMM in Finance with a minor in Economics. Alongside academics, James is a varsity member of the Dalhousie Cross Country / Track & Field teams and the Dalhousie Investment Society (DALIS). James looks to share and expand his knowledge of the financial markets and the world economy.