Short sellers target Air Canada as costs rise, travel demand weakens

Short sellers are targeting Canada’s biggest publicly traded airline as investors expect rising operational costs and weaker post-pandemic consumer demand to weigh on growth. Air Canada’s short interest as a percentage of float — a metric that measures how many traders sold shares compared to the total amount of stock available to trade — stood at nearly 19% in early July, according to financial data firm S3 Partners. This is more than double the 7.4% rate a year earlier, signaling that investors expect shares to come under further pressure as Canadians allocate more of their pay to cover higher costs of living. It’s also the highest rate recorded since December 2021 when additional COVID-19 travel restrictions were imposed, sending the rate to nearly 21%. Shares of the Canadian airline operator are trading 4.7% lower this year as economic and industry headwinds have taken their toll. The stock is also trading far below its pre-pandemic range, hitting a high of around C$50.05 ($36.74) in November 2019. “Canadian investors are concerned about a slowing Canadian economy and a potential increase in pilot pay once they negotiate their contract,” TD Cowen analyst Helane Becker said in an email. Investors are forecasting a challenging travel season for airlines, with a lack of available aircraft and materials to make them as well as elevated inflation threatening to keep passengers away. While higher interest rates have brought inflation closer to its 2% target, headline inflation quickened to 2.9% in May, up from the 2.7% a month earlier. Preliminary economic data from Statistics Canada also points to flatter growth ahead as the agency predicts gross domestic product rose 0.1% in May, slower than the 0.3% expansion a month earlier. <br/>