Why Air Canada Stock Could Have Some Big Downside From Here

Chris MacDonald
·3 min read
analyze data

For quite some time, I’ve been building a case for Air Canada (TSX:AC) as one of the top reopening plays on the TSX. However, there’s reason to be cautious with this view today.

Indeed, the case can be made that leisure travel will boom coming out of this pandemic. We’ve all been pent up too long in our home offices and home cities. Going anywhere sounds pretty nice right now.

That said, I think there are two key risk factors investors should consider today. These near-term concerns could put some downside pressure on Air Canada stock over the medium-term. Accordingly, investors bullish on the long-term turnaround coming out of this pandemic may be best-suited by being patient with picking an entry point with Air Canada stock today.

Air Canada upside may be limited

The recent deal to acquire Air Transat (TSX:TRZ) was one I expected to be big for Air Canada. Indeed, Air Transat’s growth prospects coming out of this pandemic were huge. As a key player in the leisure travel segment, I viewed Air Canada’s move to acquire Air Transat as a good one.

Furthermore, Canadian regulators approved the deal. It all but seemed a certainty that this transaction would take place this year.

However, the recent regulatory review by E.U. regulators has resulted in the termination of this offer. Air Canada was unable or unwilling to provide the remedies European regulators wanted. Accordingly, investors now need to assess the impact this forgone deal will have for Air Canada’s growth prospects over the medium-term.

Indeed, it appears the market has taken a rather rosy view of this deal falling through of late. Air Canada’s stock has actually traded higher following the announcement.

That said, I remain cautious with respect to the growth thesis for Air Canada absent this deal right now.

Canada’s slow vaccine rollout is concerning

Vaccine rollouts matter for every pandemic reopening play. In the case of airlines, this catalyst is of the utmost importance.

On this metric alone, Canada isn’t doing well right now. The country is far behind its developed peers in rolling out vaccines across the country. Indeed, it’s a large task to vaccinate a population so spread out as that of Canada’s. However, Air Canada’s growth thesis relies on this catalyst right now.

I think there’s certainly room to be cautious with Air Canada stock in this regard. The domestic vaccination rollout will determine the timing of how quickly the economy, and travel, resumes. And as investors know, timing is everything.

Accordingly, I’m of the belief Air Canada stock could see some turbulence over the near-term. Yes, this is an intriguing long-term reopening play. However, right now, I think the safer thing to do is to remain cautiously optimistic with Air Canada stock.

The post Why Air Canada Stock Could Have Some Big Downside From Here appeared first on The Motley Fool Canada.

More reading

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2021

  • Up next
  • Up next
  • Up next
  • Up next

Latest Stories

  • Amazon shoppers dub this the 'most flattering T-shirt ever' — get it for under $20

    This top's fluttery petal sleeves and slightly oversized fit set it apart from the crowd, fans say.

  • Major water users in southern Alberta agree to curb consumption in face of drought

    CALGARY — Major water users in southern Alberta have agreed to curb their consumption if there's a severe drought this spring or summer. Rebecca Schulz, the provincial environment minister, says it won't be known whether the agreements need to be acted upon until snowpack information comes in later this month. The Alberta government has announced water-sharing agreements covering four sub-basins — the Red Deer River, the Bow River, the mainstem of the Oldman River and upper tributaries of the Ol

  • AJ Simon, Albany defensive standout and NFL draft prospect, dies at 25

    Simon had visited with the Patriots ahead of next week's NFL draft.

  • Which countries have nuclear weapons?

    Nine countries currently have nuclear weapons – some legally and some illegally – with an estimated 12,100 warheads between them as of early-2024.

  • Insurance Stock Hits New Highs After 34% Gain Year To Date

    Insurance stock Progressive is at an all-time high after first quarter results. Shares have outperformed the S&P 500 with a 34% gain year to date.

  • Bomb threat evacuates Louisville zoo

    The zoo has been given the all-clear after police said it appears to be a ‘false call’

  • Province calls Gate Gourmet, striking airline catering workers back to bargaining

    The union representing striking airline catering workers says Ontario mediators have called them back to the table for talks with employer Gate Gourmet. About 800 food service staff at Toronto's Pearson airport went on strike Tuesday, leaving thousands of passengers without meals this week. The workers cook, package and deliver food and beverages to planes for service on board, with Air Canada and WestJet having to limit meal offerings after the job action. Teamsters Canada claims some long-haul

  • Rebel Moon 2 debuts with brutal Rotten Tomatoes rating

    Netflix's latest addition to the Rebel Moon franchise, Part Two: The Scargiver, has received a brutal Rotten Tomatoes score after first reviews.

  • Ilhan Omar’s daughter arrested at New York ‘Gaza solidarity camp’

    The daughter of Left-wing congresswoman Ilhan Omar has been arrested after taking part in a “Gaza solidarity encampment” at New York’s Columbia University.

  • Drying out and breezy

    Drying out and breezy

  • Sex and the City’s Tweety Bird tattoo guy has become a Gen Z heartthrob

    ‘Ben from the second season of Sex and the City come SAVE MEEEE,’ fan writes

  • US says Taliban will not be recognised until it allows women’s participation in society

    Taliban’s ‘self-stated goal of legitimacy can only be achieved’ with women’s participation, says US

  • Emma Raducanu vs Iga Swiatek LIVE: Updates and scores from Tennis Grand Prix quarter-finals in Stuttgart

    The 21-year-old Brit has returned to form but now faces the world No1 in the last eight of the Porsche Grand Prix

  • Essex Sidewalk Patio Policy, fees postponed

    After bringing up a variety of concerns, Essex Council postponed adopting a Sidewalk Patio Policy and associated proposed fees and charges to a meeting in May. When presented at the April 15 regular meeting, the recommendation was to adopt the policy and fees, so they would be in effect for May 1 for patios on Town rights-of-way. This policy does not include those on private property. David McBeth, Manager of Capital Works & Asset Management, explained this was meant to build off the existing Si

  • Old ways of housing 'just not working'

    A housing strategy summit is winding down after two days of discussion about community-based solutions to the housing crisis across Nishnawbe Aski Nation territory. The Nishnawbe Aski Nation Housing Strategy is a three-year project aimed at determining housing needs and developing housing assessments and action plans. The strategy is centred around First Nations' lived experience and knowledge while supporting First Nations' self-determination in the planning, governance and design of housing. N

  • CFIA monitoring for avian flu in Canadian dairy cattle after U.S. discoveries

    OTTAWA — The Canadian Food Inspection Agency is encouraging veterinarians to keep an eye out for signs of avian influenza in dairy cattle following recent discoveries of cases of the disease in U.S. cow herds. Avian influenza has not been discovered in dairy cattle or other livestock in Canada. But since March, U.S. officials have confirmed cases of the illness in dairy cow herds in nine states. Officials suspect that wild birds may have spread the virus to the cattle, though it appears cattle e

  • Daniel Dennett, fiery atheist philosopher who saw human brains as ‘programmes’ – obituary

    Daniel Dennett, the American philosopher, who has died aged 82, was, with Richard Dawkins, a leading proponent of Darwinism and one of the most virulent controversialists on the academic circuit.

  • Pro-Palestine Protesters Rally Near Columbia Campus After More Than 100 Arrested

    Pro-Palestine protesters gathered near the entrance to Columbia University on Thursday, April 18, to continue action after dozens of demonstrators were arrested while attempting to occupy school grounds earlier that day.Footage recorded by DataInput shows protests on Broadway and Amsterdam Avenue near the Columbia University campus.Police are seen confronting motorists who had used their horns in support of the protest, telling them they could be issued a summons if using the horn in a non-emergency situation.Police can also be seen separating protesters and people nearby whom the protesters call “Zionists.”Earlier on Thursday, NYPD officers arrested several protesters who refused to leave an encampment on the university’s South Lawn that had been set up on Wednesday.Another grouping of protesters then descended on the West Butler Lawn.More than 100 protesters were arrested on Thursday, local media reported. Credit: @DataInput via Storyful

  • G7 opposes full-scale military operation in Rafah amid fears for civilians

    Ministers say an offensive would have catastrophic impact on local people in Gaza’s southernmost city

  • Coach Outlet is packed with deals for everyone on your Mother's Day shopping list — save up to 70%

    The handbag hero has an outstanding selection of goodies for Mom.