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Air Canada stock sinks 6% amid flight cancellations

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MISSISSAUGA, ON- JUNE 10  -   Air Canada airplanes on the Terminal three tarmac at Pearson International Airport that services Toronto  in Mississauga. June 10, 2022.        (Steve Russell/Toronto Star via Getty Images)
Air Canada announced it would cancel more than 15 per cent of its scheduled capacity for July and August. (Steve Russell/Toronto Star via Getty Images)

Air Canada's stock (AC.TO) fell as much as nearly 9 per cent in early trading on Thursday, after the company said it would cut more than 15 per cent of its scheduled flights in July and August.

The Montreal-based airline said on Wednesday that it will reduce its schedule – already operating at a capacity below pre-pandemic levels – by an average of 154 flights per day in July and August. Most of the affected flights are to and from Toronto and Montreal, the airline said, on domestic and Canada-U.S. routes.

Shares of the Montreal-based airline closed the trading day at $16.04, a decline of 6 per cent.

While travel demand has resurged from COVID lows this summer, the airline's stock has yet to see a substantial recovery in its price. Shares of Air Canada are down nearly 30 per cent this year. It is currently trading at levels not seen since 2020, when the COVID-19 pandemic hit and the airline dramatically reduced its capacity levels.

Air Canada's chief executive officer Michael Rousseau said in a letter to customers released Wednesday that the airline's operations have been "disrupted by the industry's complex and unavoidable challenges", including flight delays and airport congestion amid a resurgence in travel demand. He said the airline needed to cut its remaining summer schedule "to bring about the level of operational stability we need."

"This was not an easy decision, as it will result in additional flight cancellations that will have a negative impact on some customers," Rousseau said.

"But doing this in advance allows affected customers to take time to make other arrangements in an orderly manner, rather than have their travel disrupted shortly before or during their journey, with few alternatives available."

Consumer rights advocates are pushing for compensation from Air Canada for the cancellations. Under the Air Passenger Protection Regulations, compensation of between $400 and $1,000 is required for a cancellation or delay that is "within a carrier's control."

Air Canada is not the only airline that has reduced its schedule amid surging demand. WestJet chief executive Alexis von Hoensbroech says the Calgary-based airline is flying 32 per cent fewer flights in and out of Toronto's Pearson International Airport in July than it did in 2019. He says the company made a series of "proactive" schedule cuts – the bulk of which were in Toronto – between March and May in anticipation of snarls and delays at Canada's biggest airport. While airports in western Canada are facing fewer challenges, Hoensbroech says he expects the remainder of the summer to be very challenging.

While the airline industry grapples with challenges in the travel recovery, there are some analysts that see opportunity.

National Bank analyst Cameron Doerksen added Air Canada to its list of top ideas in the transportation sector on June 22, citing "recent share price weakness and the view that the air travel recovery still has room to run."

"Air Canada shares are currently trading at essentially the same level as in June 2020 when non-essential air travel demand was close to zero and the prospect for a travel rebound were grim," Doerksen wrote in a note to clients.

"The outlook today for Air Canada is orders of magnitude better than was the case in June 2020, which is why we believe the current share price is a compelling entry point."

With files from The Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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