Air Canada stock has become one of the top casualties of Donald Trump’s trade war and the worsening relations between the US and Canada. It has crashed by 46% from its December high, and is hovering at its lowest level since 2020. This article explores whether it is safe to buy the AC stock dip.
Air Canada affected by US and Canadian relations
Relations between the United States and Canada have worsened under Donald Trump. He has consistently asked Canada to become the 51st state of the US, promising it of no tariffs and more security.
Worse, Trump has ended the USMCA trade deal he negotiated during his first term. He placed tariffs on Canadian vehicles, steel, and aluminium. These actions have hurt Canada’s economy, with some analysts estimating that it will sink into a recession this year.
At the same time, his actions has seen many Canadians boycott American goods and services. They also helped Mark Carney to become the new prime minister in this week’s election.
Air Canada has been affected as many Canadians have paused their trips to the United States. A recent New York Times article noted that the company reduced its US seat allocation by 7%. Also, agencies are selling fewer trips to the country.
These actions will likely hurt Air Canada’s business because it is one of the top carriers between the United States. It has about 2,100 non-stop flights between the two countries, bringing in millions of dollars to the company.
On the positive side, historical data shows that these boycotts don’t have a lasting impact on a company as customers move on fast. For example, some of the companies that have suffered boycotts, like AB InBev, Coca-Cola, Planet Fitness, and X have done well over time.
Further, while the US business is a good one for the company, it is not its busiest route. Instead, the company makes a lot of money in routes ike Toronto and Montreal, Vancouver, Calgary, and Ottawa. It also has a large market share in routes to India, Australia, and Europe.
Earnings download
The next significant catalyst for Air Canada’s stock price will be its financial results, scheduled for May 8.
Its most recent results showed that its business did well in the fourth quarter as its revenue rose by 4% to C$5.4 billion. Its operating expenses rose by 11% to C$562 million because of its charge related to its pilots.
The C$490 million charge contributed to its C$644 million net loss. Its guidance for this year was an EBITDA range of between $3.4 billion and $3.8 billion, with free cash flow expected to be breakeven, plus or minus $200 million. The management will likely lower this guidance because of its US route.
Air Canada stock price analysis
The weekly chart shows that the Air Canada share price has been in a steady downward trend in the past few weeks. This sell-off occurred after the stock peaked at $25.95, its highest level since July 2023, February 2022, and November 2021. That is a sign that it made a quadruple top pattern.
It has now plunged below the support level at $14.50, the neckline of the quadruple top pattern. The stock has moved below the 50-week moving average, while the Relative Strength Index (RSI) has dropped below the oversold level.
Therefore, the stock is likely to continue falling as sellers target the next key support level at $10, which is approximately 28% below the current level. The stock will then rebound over time as concerns about US-Canada relations ease.
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