What drives Air Canada's stock price?
Mar 5, 2014, 12:19 am
#1
Original Member
Original Poster
Join Date: May 1998
Location: Vancouver, Canada
Posts: 6,222
What drives Air Canada's stock price?
Recently there have been many claims that Air Canada's rapidly escalating stock price was due to the skill (nay, brilliance) of their executive management team. I think that's utter nonsense.
More nonsensical still were the claims last summer that their increasing profits† were due to the recently announced yet not yet implemented rouge program. Apparently rouge was so brilliant it had the ability to retroactively affect profits.
Likewise with claims that increasing profits were due to the massive cutbacks and the alleged cost savings supposedly associated with those cutbacks.
Contrary to fabricated claims about what I've stated in the past about their share price, I've always maintained that more than anything their share price is due to market conditions. That is, the recent rapid increase in share price was simply the result of market forces, which AC management had very little to do with.
On the upside (for AC management) that means the recent precipitous drop in share prices were probably not due to the vast hordes of frequent flyers/FTers abandoning Air Canada for greener pastures. Nor was it due to scandalous incompetence on the part of those very same managers.
Rather, the weather that hammered all airlines starting in early December (and continues even today), possibly combined with currency fluctuations, are the real cause. You know -- market forces, which AC management had very little to do with.
(Of course, given that the weather in the first quarter of this year has already been worse than anything last year, things can only get better, er, worse.)
My take is that Air Canada can now implement these cutbacks and increase capacity unchecked, even if many FFers are in fact leaving, 'cause currently there's a line up around the block of people waiting to take their place. In today's market, it appears no matter what you do, you can survive and maybe even prosper.
But once the economy turns, as it inevitably always does, then Air Canada will be stuck with lots of excess capacity and a substandard product. That's where it will make the difference.
Now it's possible that argument could be made against any airline these days. But when that time comes, they'll be fighting each other tooth and nail to keep, recover and/or poach customers, primarily by dangling more and more benefits in front of those FFers. And then the picture won't look so pretty.
Don't believe me that Air Canada's stock price is primarily (if not solely) due to market conditions? Then have a look at the chart below. It shows the share price of 10, count 'em, 10, different North American airlines. And to highlight the best of Air Canada's "performance" I've trimmed the chart to only include the period from mid-August (when the price started its rapid increase) to mid-January (just prior to the big "crash.")
Which one of those lines is different from the rest?
†And by "profits" I mean losses restated through the use of not generally accepted accounting principles.
More nonsensical still were the claims last summer that their increasing profits† were due to the recently announced yet not yet implemented rouge program. Apparently rouge was so brilliant it had the ability to retroactively affect profits.
Likewise with claims that increasing profits were due to the massive cutbacks and the alleged cost savings supposedly associated with those cutbacks.
Contrary to fabricated claims about what I've stated in the past about their share price, I've always maintained that more than anything their share price is due to market conditions. That is, the recent rapid increase in share price was simply the result of market forces, which AC management had very little to do with.
On the upside (for AC management) that means the recent precipitous drop in share prices were probably not due to the vast hordes of frequent flyers/FTers abandoning Air Canada for greener pastures. Nor was it due to scandalous incompetence on the part of those very same managers.
Rather, the weather that hammered all airlines starting in early December (and continues even today), possibly combined with currency fluctuations, are the real cause. You know -- market forces, which AC management had very little to do with.
(Of course, given that the weather in the first quarter of this year has already been worse than anything last year, things can only get better, er, worse.)
My take is that Air Canada can now implement these cutbacks and increase capacity unchecked, even if many FFers are in fact leaving, 'cause currently there's a line up around the block of people waiting to take their place. In today's market, it appears no matter what you do, you can survive and maybe even prosper.
But once the economy turns, as it inevitably always does, then Air Canada will be stuck with lots of excess capacity and a substandard product. That's where it will make the difference.
Now it's possible that argument could be made against any airline these days. But when that time comes, they'll be fighting each other tooth and nail to keep, recover and/or poach customers, primarily by dangling more and more benefits in front of those FFers. And then the picture won't look so pretty.
Don't believe me that Air Canada's stock price is primarily (if not solely) due to market conditions? Then have a look at the chart below. It shows the share price of 10, count 'em, 10, different North American airlines. And to highlight the best of Air Canada's "performance" I've trimmed the chart to only include the period from mid-August (when the price started its rapid increase) to mid-January (just prior to the big "crash.")
Which one of those lines is different from the rest?
†And by "profits" I mean losses restated through the use of not generally accepted accounting principles.
Mar 5, 2014, 1:37 am
#2
Join Date: Nov 2011
Posts: 6,385
Recently there have been many claims that Air Canada's rapidly escalating stock price was due to the skill (nay, brilliance) of their executive management team. I think that's utter nonsense.
More nonsensical still were the claims last summer that their increasing profits† were due to the recently announced yet not yet implemented rouge program. Apparently rouge was so brilliant it had the ability to retroactively affect profits.
Likewise with claims that increasing profits were due to the massive cutbacks and the alleged cost savings supposedly associated with those cutbacks.
Contrary to fabricated claims about what I've stated in the past about their share price, I've always maintained that more than anything their share price is due to market conditions. That is, the recent rapid increase in share price was simply the result of market forces, which AC management had very little to do with.
On the upside (for AC management) that means the recent precipitous drop in share prices were probably not due to the vast hordes of frequent flyers/FTers abandoning Air Canada for greener pastures. Nor was it due to scandalous incompetence on the part of those very same managers.
Rather, the weather that hammered all airlines starting in early December (and continues even today), possibly combined with currency fluctuations, are the real cause. You know -- market forces, which AC management had very little to do with.
(Of course, given that the weather in the first quarter of this year has already been worse than anything last year, things can only get better, er, worse.)
My take is that Air Canada can now implement these cutbacks and increase capacity unchecked, even if many FFers are in fact leaving, 'cause currently there's a line up around the block of people waiting to take their place. In today's market, it appears no matter what you do, you can survive and maybe even prosper.
But once the economy turns, as it inevitably always does, then Air Canada will be stuck with lots of excess capacity and a substandard product. That's where it will make the difference.
Now it's possible that argument could be made against any airline these days. But when that time comes, they'll be fighting each other tooth and nail to keep, recover and/or poach customers, primarily by dangling more and more benefits in front of those FFers. And then the picture won't look so pretty.
Don't believe me that Air Canada's stock price is primarily (if not solely) due to market conditions? Then have a look at the chart below. It shows the share price of 10, count 'em, 10, different North American airlines. And to highlight the best of Air Canada's "performance" I've trimmed the chart to only include the period from mid-August (when the price started its rapid increase) to mid-January (just prior to the big "crash.")
Which one of those lines is different from the rest?
†And by "profits" I mean losses restated through the use of not generally accepted accounting principles.
More nonsensical still were the claims last summer that their increasing profits† were due to the recently announced yet not yet implemented rouge program. Apparently rouge was so brilliant it had the ability to retroactively affect profits.
Likewise with claims that increasing profits were due to the massive cutbacks and the alleged cost savings supposedly associated with those cutbacks.
Contrary to fabricated claims about what I've stated in the past about their share price, I've always maintained that more than anything their share price is due to market conditions. That is, the recent rapid increase in share price was simply the result of market forces, which AC management had very little to do with.
On the upside (for AC management) that means the recent precipitous drop in share prices were probably not due to the vast hordes of frequent flyers/FTers abandoning Air Canada for greener pastures. Nor was it due to scandalous incompetence on the part of those very same managers.
Rather, the weather that hammered all airlines starting in early December (and continues even today), possibly combined with currency fluctuations, are the real cause. You know -- market forces, which AC management had very little to do with.
(Of course, given that the weather in the first quarter of this year has already been worse than anything last year, things can only get better, er, worse.)
My take is that Air Canada can now implement these cutbacks and increase capacity unchecked, even if many FFers are in fact leaving, 'cause currently there's a line up around the block of people waiting to take their place. In today's market, it appears no matter what you do, you can survive and maybe even prosper.
But once the economy turns, as it inevitably always does, then Air Canada will be stuck with lots of excess capacity and a substandard product. That's where it will make the difference.
Now it's possible that argument could be made against any airline these days. But when that time comes, they'll be fighting each other tooth and nail to keep, recover and/or poach customers, primarily by dangling more and more benefits in front of those FFers. And then the picture won't look so pretty.
Don't believe me that Air Canada's stock price is primarily (if not solely) due to market conditions? Then have a look at the chart below. It shows the share price of 10, count 'em, 10, different North American airlines. And to highlight the best of Air Canada's "performance" I've trimmed the chart to only include the period from mid-August (when the price started its rapid increase) to mid-January (just prior to the big "crash.")
Which one of those lines is different from the rest?
†And by "profits" I mean losses restated through the use of not generally accepted accounting principles.
Mar 5, 2014, 5:25 am
#4
Join Date: Jan 2010
Location: Ottawa
Posts: 202
Given the nature of airline stocks, I would think that very few people or funds invest in them for longer term gain and dividends (as one might do with more stable type of business like a Canadian bank).
So it would really be the shorter term investor who believe they have an edge in predicting the future of the airline business and this airline in particular who would do the bulk of the trading that would be responsible for the ups and downs of the stock.
And the strategic longer term investors like Lufthansa (I seem to recall they own a chunk of AC) would serve to stabilize the stock price since they are neither buying nor selling - they are just holding on to it because the stability of AC is good for their own business.
So it would really be the shorter term investor who believe they have an edge in predicting the future of the airline business and this airline in particular who would do the bulk of the trading that would be responsible for the ups and downs of the stock.
And the strategic longer term investors like Lufthansa (I seem to recall they own a chunk of AC) would serve to stabilize the stock price since they are neither buying nor selling - they are just holding on to it because the stability of AC is good for their own business.
Mar 5, 2014, 6:04 am
#5
FlyerTalk Evangelist
Join Date: Sep 1999
Location: Toronto, Ontario, Canada
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Speculation and Market/PR Hype. AC has been expert at snowing the media and analysts into projecting $12 highs. However, reality set in last month as the C$ dropped and weather affected some operations. Even with "record profits" and the restoration of its pension fund, this dropped the share price from about $10 to its current $5+. If fundamentals were considered in the market price, the share price wouldn't have dropped to half in a single month. BTW AC has never issued a dividend, either the new AC or the old one. And share price history of the original AC $8 offering saw it rise to about $16, though it generally hovered in the $10-$14 range before the CP takeover. The peak occurred during that battle when AC offered a buy-back of 60% of shares at $16 a share.
Mar 5, 2014, 6:18 am
#6
Join Date: Jan 2010
Location: Ottawa
Posts: 202
WOW - Didn't realize they had NEVER issued a dividend. What a business! And unlike some high-tech stocks, its not as if they make up for no dividend by rising share prices over a longer period of time.
Mar 5, 2014, 6:34 am
#8
Join Date: Aug 2009
Location: YLW
Programs: AC- SE100 1MM, Hilton Diamond, Marriott Platinum, National Executive, Nexus/GE
Posts: 4,307
Mar 5, 2014, 7:42 am
#9
Join Date: Jul 2005
Location: Ontario, CAN
Posts: 5,813
Who claimed Rouge was positively impacting AC's bottom line before it got going? What are you talking about?
How come you didn't include AC's stock/profit performance analysis during the years where their product was at/near the top and you allocated your personal spend to them? Wouldn't that tell the whole story?
Don't believe me that Air Canada's stock price is primarily (if not solely) due to market conditions? Then have a look at the chart below. It shows the share price of 10, count 'em, 10, different North American airlines. And to highlight the best of Air Canada's "performance" I've trimmed the chart to only include the period from mid-August (when the price started its rapid increase) to mid-January (just prior to the big "crash.")
Which one of those lines is different from the rest?
Which one of those lines is different from the rest?
AC : +103.8%
DL : +69.2%
UA : +54.1%
US : +34.1%
WS : +11.1%
Trailing 52-week share movement :
AC : +143.2%
DL : +134.2%
UA : +65.5%
US : +65.4%
WS : + 5.2%
Mar 5, 2014, 8:02 am
#10
Join Date: Apr 2011
Location: YYC
Programs: AC SE 1MM, Marriott Ambassador
Posts: 3,397
The only explanation required, for those people who want to both invest in the market and complain about its behaviour: you will run out of money before the market runs out of irrationality.
Mar 5, 2014, 10:21 am
#13
Join Date: Jun 2009
Location: YYZ, SFO
Programs: AS 100K, UA*S, IHG Plat, Marriott Titanium, Hilton Diamond | Formerly: AC Super Elite
Posts: 2,476
But what about Richard Branson? He hasn't dropped to millionaire status (yet??) and yet his Virgin group has like what, 2 or 3 airlines?? 
Food for thought :3
Food for thought :3
Mar 5, 2014, 10:40 am
#14
Join Date: Dec 2008
Posts: 797
Mar 5, 2014, 11:22 am
#15
Join Date: Mar 2008
Posts: 812