Air Canada stock met with turbulence after CEO takes shot at ‘short-term investors’

Air Canada’s decision to prevent providing capacity guidance was a shot over the bow at short-term investors, but the shrapnel is hitting long-term investors too.

The airline’s stock fell for that second day in a row Thursday after it said it won’t release capacity forecasts as well as stop providing monthly operational data. The stock has now lost 15.9 per cent of its value since Tuesday.

CEO Calin Rovinescu was blunt about his rationale for reducing guidance, saying he’s “not running the corporation for that benefit of short-term investors.”

If short-term investors don’t like this, I can cause them to become leave.

“We’ll see what the stock price does,” he said on a conference call with analysts Wednesday.

“If short-term investors don’t like this, I can encourage them to leave. We’re running the corporation for the benefit of our long-term stakeholders, and that means we will be providing information that we consider highly relevant to how we manage the company.”

But Eric Nuttall, a portfolio manager at Sprott Asset Management and an Air Canada shareholder, said providing less information to investors is never likely to be received well.

“It shows a diploma of ignorance with regards to the main city markets,” said Nuttall, that has held the airline’s shares for about annually.

Related

Bombardier Inc notches key Air Canada order as it announces 7,000 job cutsMore ‘bruises and bloodshed’ expected for Air Canada and WestJet

“I appreciate their set on focusing people on longer-term fundamentals, that will eventually get people to realize how undervalued the stock is, but I can’t think of a situation where less information has ever been taken positively.”

If Air Canada was worried that its guidance and monthly updates appeared to be taken out of context, it should have given investors with increased information, not less, he added.

“Educate the investor on which they must be taking a look at and how they should be taking a look at it, don’t deprive them of knowledge with which to make an informed decision.”

Air Canada is definitely undervalued when compared with its U.S. peers and it is currently trading at a price-earnings ratio of two.5 compared to a U.S. airline average of 7.2, based on National Bank.

That is partly because investors are worried that the Canadian airlines are adding too much capacity right into a weak market, specifically in Western Canada. Both Air Canada and WestJet Airlines Ltd. maintain their expansion plans are rational, however their recent stock price declines – 30 per cent for Air Canada and 25 % for WestJet year-to-date – indicate investors aren’t so sure.

However, eliminating guidance and monthly updates could only serve to increase investor confusion, analysts said.

“The withdrawal from the guidance is likely to be problematic for investors and the investment community because it is likely to bring about an increase in dispersion round the estimates and boost the uncertainty in what is already an intricate and volatile story,” AltaCorp analyst Chris Murray said inside a note to clients.

National Bank analyst Cameron Doerksen agreed, calling the decision “a significant departure from past practice and industry norms” that could actually increase share-price volatility.