Does Air Canada Stocks Have A Better Future Than WestJet Airlines?

Summary

• From wide travel restrictions to the deep plunge in demand for air travel, the impact of coronavirus on the travel industry has been unprecedented.
• Both Air Canada and WestJet burning through cash to survive this pandemic.
• As the economy recovers and COVID 19 vaccination is released in the market, stocks of both the airlines likely to recover.

Air Canada’s stock price movement is being closely watched by equity market investors. A top stock in the last decade, the carrier’s good fortunes eroded in the economic morass caused by the COVID pandemic. Trading at nearly C$ 18, Air Canada stocks are down nearly 63 per cent this year. On the other side, stands low-cost airline WestJet Airlines, which is owned by Onex Corp. WestJet stocks, too, are down 20 per cent this year as it tries to navigate the pandemic crisis that has been particularly harsh on the aviation industry.

From wide travel restrictions to the deep plunge in demand for air travel, the pandemic has left sort of an indelible mark on the industry. The federal government has now introduced a new Flight Plan for navigating the pandemic, which lay out best practices and uniform standards for health and safety of passengers. However, the travel restrictions remain intact, and federal government shows no sign of easing them.

Air Canada Stock (TSX:AC)

Scrips of Canada’s flag carrier are down 63 per cent year-to-date (YTD). At the lowest point of the pandemic-led market crash, the shares lost 76 per cent of its value from a peak C$ 52.01. However, the stocks are now regaining their lost value. Air Canada stocks yielded 9.6 per cent returns quarter-to-date (QTD) and 19 per cent returns month-to-date (MTD).

The airline let go over 50 per cent of staff or nearly 20,000 employees in its devastating second fiscal quarter of 2020. It retired 79 planes, reduced seating capacity by 92 per cent and indefinitely suspended certain routes. Despite taking these harsh measures aimed, the carrier does not expect any changes the revenues to return to pre-pandemic level till 2022.

READ: Is Air Canada a good buy?

The carrier’s first and second quarters results haven’t been so stellar. The company lost C$ 1.05 billion and C$ 1.75 billion the back-to-back quarters. However, Air Canada shares have high trade volumes. Its current market valuation is C$ 5.3 billion and the shares are currently trading at C$ 17.99.

WestJet Stock (TSX:ONEX)

Private equity and asset management group Onex acquired WestJet Airlines for C$ 3.5 billion all cash deal in December 2019, with shareholders receiving C$ 31 per share.

Apart from WestJet Airlines, Canada’s largest buyout firm has nearly C$ 36 billion of assets and a diverse portfolio including electronics maker Celestica, Parkdean Resorts and others. Onex Corp is currently valued at C$ 6.2 billion.

Onex stocks are currently down 20 per cent. During the height of the pandemic-led market crash, the company lost 50 per cent of its value by mid-March. Since then, it has recovered over 60 per cent of the lost value. The stocks have gained 2.4 per cent QTD and over 9 per cent MTD.

In the second quarter 2020 (ending June 30), the group earned C$ 689 million with C$ 657 million from investing segment alone. It ended the quarter with C$ 1.9 billion cash in hand. It distributed quarterly dividends of C$ 0.10 and has current dividend yield of 0.613 per cent. Onex shares are currently trading at C$ 65.20.

Air Canada Stock vs WestJet (Onex) Stock

Rising to challenges such as the current pandemic crisis is not new for the aviation industry. It braved the fallouts from the SARS pandemic, the 9/11 attacks and numerous safety incidents and economic recessions.

For Air Canada, this isn’t its first tryst with difficult times. The carrier had filed for bankruptcy during the 2002- 2003 SARS epidemic. But the airline turned around its fortunes and went on to become one of the best stock performers on the TSX in 2019.

READ: How Do Air Canada’s (TSX:AC) Stock Fundamentals Look Right Now?

WestJet and parent firm Onex, too, has been reeling under the pandemic heat, leading to stock devaluation.

Here’s some key fundamentals of both the stock:

Air Canada Stock vs WestJet (Onex) Stock*

*Last Twelve Months Figures (ending June 30), Source: EODHD/Others Thomson Reuters

**Please note, WestJet is a part of Onex Corp, which includes other companies. For more details, please visit the official site.

But looking at the market trends, both Air Canada and WestJet (Onex) stocks could be poised for big rebound.

As the economy recovers and COVID 19 vaccination is released in the market, Canada will ease travel restrictions and the stocks of these carriers will be ready for a solid take-off.

For now, both the airlines are burning through cash as they try to scramble out from the pandemic crisis. But investor believe, recovery it just a matter of time till the losses are recovered.