With the pandemic continuing to rage on, investors may be enticed to pick up shares in companies that have been ravaged by the pandemic as potential rebound plays once we see this pandemic slow and the economy reopen. One such sector that has been under intense scrutiny for a long time has been the airlines space. In Canada, Air Canada (TSX:AC) is the primary airline investors have as a way to play the recovery in travel that is expected to play out in travel in the quarters to come.
There is some room for optimism that some real value exists with Air Canada today. Shares recently spiked on Friday after Air Canada reported earnings. The company said it was expecting a bailout to take place at some point in the near future. The lack of a bailout materializing since the onset of the pandemic has provided some worry for investors in airlines, particularly given the high levels of cash burn airlines such as Air Canada have been forced to endure in recent months.
Air Canada reported cash burn of approximately $13 million per day this past quarter, despite cutting its workforce by 50% and reducing its capacity dramatically in recent quarters as well.
Until travel restrictions open up, this level of cash burn is expected to continue. However, value investors may be enticed to pick up shares in beaten up companies like Air Canada if one believes the pandemic is on its last legs. There is a significant amount of optimism right now around a resurgence in discretionary vacation travel once pandemic-related restrictions are lifted. In combination with a potential bailout, these factors could bode well for value investors considering airlines like Air Canada right now.
Invest wisely, my friends.
