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Highlights
- Air Canada has secured a significant labor agreement with its pilots, leading to adjustments in revenue expectations and operational costs.
- The agreement presents both challenges and opportunities, including potential impacts on passenger bookings and increased fare discounting that may affect revenue yields.
- Despite these challenges, analyst Cameron Doerksen maintains an "Outperform" rating for Air Canada, highlighting attractive valuation compared to historical averages and U.S. peers.
Air Canada, a leading airline in the Industrial sector, recently reached a notable labor agreement with its pilots, marking a significant development for the company. Following this agreement, National Bank Financial analyst Cameron Doerksen has adjusted his price target for Air Canada, reflecting the potential impacts of recent events on the airline's performance.
The recent labor agreement brings both immediate challenges and opportunities for Air Canada (TSX: AC). Doerksen highlighted that there might be residual effects from the prior uncertainty surrounding the potential work stoppage, which could have influenced passenger booking behavior. This uncertainty likely resulted in some cancellations and associated costs related to re-booking passengers. Additionally, following the announcement of the tentative agreement, Air Canada has reportedly engaged in more aggressive fare discounting, which may affect revenue yields in the latter part of the current year.
In his assessment, Doerksen noted adjustments to his revenue expectations for the upcoming quarters, including a slight reduction in yield assumptions and load factor projections. Increased operational costs stemming from changes in flight schedules and cancellations were also factored into his outlook.
The analyst acknowledged that while the new labor agreement provides clarity moving forward, it is expected to come with significant financial implications for Air Canada. Specifically, the airline will need to make retroactive adjustments to its pilot cost accruals, leading to a notable catch-up cost that will likely appear in operational expenses in the upcoming quarters. Furthermore, once the new contract is ratified, pilots are anticipated to receive a one-time cash payment to reconcile the difference between the old and new contract terms.
Despite the challenges presented by this labor agreement, Doerksen maintained an "Outperform" rating on Air Canada, adjusting his price target accordingly. The analyst views Air Canada’s valuation as attractive compared to historical averages and its U.S. peers, suggesting that there may be opportunities for growth in the airline's stock as the market stabilizes.
As Air Canada continues to navigate the complexities of labor relations and operational adjustments, its performance in the upcoming quarters will be closely monitored, particularly in light of evolving market conditions in the airline industry.
