Given the outsized impact the coronavirus pandemic has had on certain sectors, investors looking one or two years down the road may wish to pick up some previous "high flyers" at discounts today with the hope that mass vaccinations and an end to the pandemic are on the horizon. Indeed, the airline sector is one such area which has been a difficult one to pinpoint what the future may hold. In Canada, Air Canada (TSX:AC) is often looked to as such a rebound play for longer-term investors willing to hold through the volatility.
Whether or not Air Canada stock represents value today is in the eye of the beholder, in my opinion. The near-term issues the airline faces are going to provide headwinds for the foreseeable future. Until travel restrictions are loosened or lifted, a rebound in passenger volumes is not likely to materialize. While I do think there is a tremendous amount of pent-up demand for discretionary air travel given how cooped up everyone has felt as a result of the pandemic (we all need a vacation somewhere warm), exactly when this will be allowed remains very uncertain.
Business travel is likely to be structurally impacted as a result of this pandemic as well, so investors betting on a rebound in airlines like Air Canada likely need to bank on a resurgence in discretionary travel to more than offset declines in business travel over time. This is a tricky value proposition right now. Accordingly, I’m staying on the sidelines with this stock until we get a clearer line of sight into what the future holds.
Invest wisely, my friends.
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