Accessibility/Mobile Features
Skip Navigation
Skip to Content
Editorial News
Business
Classified Sites

The Canadian Press - ONLINE EDITION

Airline stocks were hit hard on TSX over concerns about falling dollar

MONTREAL - Canada's largest airline and travel company stocks were hit hard Tuesday over concerns about the impact of the falling loonie.

Shares in Air Canada (TSX:AC.B) closed down 12.3 per cent, Air Transat owner Transat A.T. (TSX:TRZ.B) was off eight per cent and WestJet (TSX:WJA) fell more than four per cent — all of them in heavy to very heavy trading.

Air Canada's shares fell $1.07 to $7.63 on volume of more than 12.3 million shares, four times its daily average.

WestJet was off $1.06 to $24.83 on some 1.4 million shares, also four times its daily average, while Transat was down 84 cents to $9.57 on 342,000 shares, more than double its daily average.

By comparison, Chorus Aviation (TSX:CHR.B) was off just three cents at $3.69 in lighter than average trading.

The sell-off for the three largest companies came following published reports citing Air Canada CEO Calin Rovinescu's comments about the dollar, several analyst reports highlighting the impact of the currency devaluation and at least one downgrade.

The Canadian dollar closed Tuesday at a fresh 4 1/2 year low, down 0.35 of a cent at 89.64 cents US.

The decrease has placed significant pressure on airlines because fuel and airplane costs are paid in U.S. dollars, although some of the fuel is hedged to protect against fluctuations. Fuel prices, one of the largest costs for an airline, are up 8.9 per cent over the last three months in U.S. dollars, but up 13.2 per cent in Canadian currency.

"We have a massive exposure to the US dollar and seeing the kind of precipitous drop that we've had in the last little while is significant," Rovinescu told reporters Monday.

Air Canada Vacations, Transat and Sunwing have added $35 per passenger currency surcharges while Sunquest has raised package costs to offset higher hotel costs.

Rovinescu said the airline has not made any announcements on fare increases, which are affected by competitive market conditions.

Each one-cent change in the loonie has a $33-million impact on Air Canada's pre-tax operating income before airplane costs (EBITDAR) and a $14-million operating impact for WestJet.

Chris Murray of AltaCorp Capital said there are limits to how much of the currency impact the airlines are able to absorb over the long term.

"We expect currency may remain a headwind for 2014, which will require some adjustment, mainly in fares to relieve some of the cost pressure. Currently demand expectations and forward booking curves are remaining supportive of fare increases," he wrote in a report.

Glenn Engel of Bank of America Merrill Lynch cut his price target for Air Canada to $8 from $9.75, and WestJet to $28 from $32.

Analyst Walter Spracklin of RBC Capital Markets said the sell-off was overdone and presented a buying opportunity for investors.

"The bottom line is that currency fluctuations, cold weather in Canada (and fat finger trades ahead of the third-quarter results) are not reasons to sell Air Canada stock, in our view," he wrote.

"Factors to be monitored closely are traffic, yield and cost-cutting progress — which based on the most recent report results from both the monthly stats and our proprietary yield tracker show that these are moving in the right direction."

  • Rate this Rate This Star Icon
  • This article has not yet been rated.
  • We want you to tell us what you think of our articles. If the story moves you, compels you to act or tells you something you didn’t know, mark it high. If you thought it was well written, do the same. If it doesn’t meet your standards, mark it accordingly.

    You can also register and/or login to the site and join the conversation by leaving a comment.

    Rate it yourself by rolling over the stars and clicking when you reach your desired rating. We want you to tell us what you think of our articles. If the story moves you, compels you to act or tells you something you didn’t know, mark it high.

Sort by: Newest to Oldest | Oldest to Newest | Most Popular 0 Commentscomment icon

You can comment on most stories on brandonsun.com. You can also agree or disagree with other comments. All you need to do is register and/or login and you can join the conversation and give your feedback.

There are no comments at the moment. Be the first to post a comment below.

Post Your Commentcomment icon

Comment
  • You have characters left

The Brandon Sun does not necessarily endorse any of the views posted. Comments are moderated before publication. By submitting your comment, you agree to our Terms and Conditions. New to commenting? Check out our Frequently Asked Questions.

letters

Make text: Larger | Smaller

Brandon Sun Business Directory
Submit a Random Act of Kindness
Why Not Minot?
Welcome to Winnipeg

Social Media

Canadian Mortgage Rates