The sell-off in Air Canada (TSX:AC) stock intensified on Monday, as it opened with on the downside. The stock has been crashing for a previous couple of weeks after posting a massive recovery in November. In the week ended on December 11, it fell by about 5% and lost another 12% in the following week.
Let’s take a closer look at some of the key factors driving the ongoing sell-off in Air Canada and find out why the crash is likely to continue in the near term.
Air Canada stock This morning, Air Canada opened at $21.25 per share — down about 7.8% from the previous week’s closing price of $23.06. After posting a day low of $21.03, the stock showcased a minor recovery. However, it was still down by 5.2% for the day at 10 AM ET.
These losses were mainly driven by investors’ pessimism related to a new novel coronavirus variant in the United Kingdom. The new strain of the virus spreads more quickly. It has led to more restrictions in many parts of the country and caused many countries to cut the U.K. off by temporarily suspending all flights.
Investors fear more restrictions Most countries — including Canada — have announced air travel restrictions from the U.K. for a few days. However, the possibility of an extension of these restrictions is likely if the virus continues to spread faster and proves to be more deadly.
Even worse, the air travel restrictions might be extended to other international routes if the new strain of virus spreads in other countries as well, I believe. Investors’ fears about more such air travel restrictions are driving the sell-off in Air Canada stock, which may make its investors’ life more miserable.
Stay away from Air Canada at the moment In one of my articles earlier this month, I’d warned investors about a potential crash in Air Canada stock. At the time, the stock was extending the previous month’s rally in December with about 7% month-to-date gains. I explained why Air Canada’s insane November recovery doesn’t make its terrible fundamentals any better.
I find the basis of its November rally far from the reality. And my fears are turning out to be true. That’s why you might want to stay away from Air Canada stock for now — unless you see some concrete signs of a fundamental recovery in the coming quarters.
Bill Gates’s opinion on business air travel While the news of the new coronavirus variant and related restrictions could be blamed for the ongoing crash in Air Canada’s shares, the airline industry’s future prospects, in general, don’t look promising either. Microsoft (NASDAQ:MSFT) co-founder Bill Gates recently echoed some concerns raised by many experts that would make Air Canada’s fundamental recovery more difficult if they turn out to be true. Gates believes that business travel might get reduced by nearly half in the post-COVID world.
We should remember that business travel is one of the most profitable segments for airlines. That’s why a significant reduction in the segment traffic would take a big toll on the airline industry’s bottom line.
Foolish bottom line Given the current circumstances, I wouldn’t want to touch airline stocks — including Air Canada — for now. Instead, I would focus on investing in more reliable and undervalued companies to better prepare for a potential market crash in the near term.
The post Bill Gates: Air Canada (TSX:AC) Crash Will Continue, as I’d Warned appeared first on The Motley Fool Canada.
Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.
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