When it comes to aviation companies in Canada, investors are only left with two viable options: WestJet Airlines Ltd (TSX: WJA) and Air Canada (TSX: AC.B). One is a former crown corporation, and the other are the rebels that broke Air Canada’s near-monopoly of Canadian skies.
So which offers the best upward momentum for investors?
Tandem record load factors
One thing these two companies have in common is that it was a very good August, as both airlines reported record load numbers.
WestJet posted an all-time high record load factor of 89.3%, a 1.4% increase over August 2013, flying a total of 1.9 million guests. Revenue passengers per mile grew by 7.4% year over year compared to a 5.7% increase at the same time last year.
Meanwhile, Air Canada also set a new record in its 77-year history, posting an all-time record load factor of 89.8%, up from 89.3% in August 2013. Overall traffic increased in the month of August increased by 10.8% helping Air Canada reach this milestone.
Rouge vs. Encore
A decade ago, the great battle was over wide-body aircrafts flying to major centers. Now, a new war is emerging between these two airlines in the form of discount carriers. Air Canada had dabbled in the regional discount market several times, but with WestJet stepping up its Encore brand, the success of Rouge is more important than ever.
Time will only tell if Rouge goes the way of Jazz, Zip, Tango, and Jetz, but WestJet and Encore are doing everything they can to make it so. By expanding East and establishing a new hub in Toronto, Encore has begun to service Fredericton and Thunder Bay, striking at Air Canada’s territory.
So far, Encore only has 14 aircrafts serving 20 cities but all of that has come in just under a year — however, it has plans for a fleet of 30; Rouge has already grown to 54 routes in about the same time frame. Where Encore is seeking out new destinations, Air Canada is simply converting routes to Rouge, offering cheaper tickets, less thrills, and less leg room.
One advantage WestJet holds is the Q-400 turboprop aircrafts it uses, which are seen as “cheaper” to operate than the “Air Canada doesn’t want us anymore” Boeing 767s and Airbus A319 operated by Rouge.
It is these smaller discount carriers that are fueling the current surge in profits for both companies and will continue for some time to come.
Check your boarding pass
Both companies have their bright spots and turbulent ones. Air Canada still dominates the international flight market, but people have come out talking about how they have been “Rouged” by the company. WestJet has only recently expanded to a single destination in Europe and is finally expanding into wide-body aircrafts. But WestJet has a much stronger public opinion and has truly honed its offering to Canadians.
WestJet’s stock closed Monday at $30.58, with a 52-week range of $22.58 to $30.92 and an average price target of $33.90.
Air Canada’s stock closed Monday at $8.96, with a 52-week range of $2.91 to $10.90 and an average price target of $12.20.
Personally, I prefer WestJet not only because it is the only one of the two with a dividend but because it focuses less on cuts and more on expansion and customer satisfaction, a strategy that has turned it from a fly-by-night carrier to a national brand.
