Toronto: Air Canada sank by the most in 13 months as the Centers for Disease Control and Prevention said the first case of the Wuhan coronavirus has appeared in the US
The stock fell 4.5 per cent, its biggest drop since December 2018 amid reports that a person in Washington state had the virus. The CDC said that the person was recently travelling in China. This is the latest development in China’s respiratory virus that has caused six deaths and infected a number of medical workers.
The outbreak is reminiscent of the severe acute respiratory syndrome, or SARS, pandemic that killed more than 800 people in Asia. Toronto had the most deaths from the illness outside Asia.
“At this time, we’re monitoring developments closely,” said Air Canada spokesman Peter Fitzpatrick by email. “We take direction on handling of public health matters such as this from the PHAC (Public Health Agency of Canada) and other worldwide health experts.”
Air Canada reported a back-to-back quarterly losses in 2003 as fewer people travelled after the outbreak of SARS. Back then, travellers avoided Toronto, the airline’s main hub, after the World Health Organisation imposed a travel advisory because of the outbreaks in Canada’s biggest city.
“It is difficult to determine specifically the earnings impact to AC given the fluidity of this current situation,” said Canadian Imperial Bank of Commerce analyst Kevin Chiang in a report published Tuesday. Air Canada has stress tested its operating model and determined that Ebitda margin contraction will be less than half of the 500 basis point decrease it experienced in 2009 after the start of the Great Recession, he said.
If this virus is as bad as “black swan” events, the Canadian airline could take a C$475 million ($363 million) hit to Ebitda, suggesting a C$7 per share hit to its stock value or a 14 per cent decline from its Monday’s closing price. “That being said, it is unknown at this time if the coronavirus will be as bad as the SARS outbreak from 2003,” Chiang said.
The spread of this virus has the potential to slow growth, just as the SARS outbreak did 17 years ago, said Frances Donald, Toronto-based global chief economist at Manulife Investment Management.
“You have no choice to follow for example the SARS epidemic, which slowed growth in China and the Asian region,” Donald said in an interview at Bloomberg’s Toronto office Tuesday. “The market has no choice but pricing a probability that it becomes the outcome again.”