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Could an Air Canada Investment Offer Returns Like Bitcoin?

Few can deny that the incredible growth Bitcoin has witnessed has become one of the most discussed events of the past year. The cryptocurrency, which started the year valued at just over US$740 per coin, has shot upwards of US$15,000 per coin.

That’s an incredible investment return, albeit for a very volatile holding. But did you know there are stocks that have offered a similar level of return?

Air Canada (TSX:AC)(TSX:AC.B) has witnessed some incredible growth of its own. Over the past five years, Canada’s largest airline has witnessed a growth of over 1,300%, and that growth looks set to continue, though likely at a slower pace for the near future.

The tale of two airlines

Air Canada’s rise stems largely from both an improved, if not matured, business model, as well as from nearly impeccable timing in executing that improved business model.

Historically, airlines were regarded as horrid investments. They made little profit and had a myriad of massive costs, ranging from specially trained ground crews, pilots, and gate agents to the cost and maintenance of the plane itself.

If that weren’t bad enough, airlines were incredibly suspect to events in the markets they serve, with everything from political turmoil and unrest to inclement weather taking a toll on the bottom line.

When times were good, or more specifically, when there were no issues in any of the above factors, airlines made huge profits, which they spent immediately on adding new routes, planes, or upgrading the livery and uniforms of the airline.

When times were not so good, airlines lacked that financial cushion to weather the storm, which meant huge losses and, occasionally, bankruptcy protection. By way of example, in the 2000-2010 period, there were over 30 bankruptcies filed by airlines.

What’s changed? Air Canada and, by extension, the airline industry, has matured. The company focused on profitable routes and using efficient planes. Older planes were either sold off or farmed out to frequent high-capacity routes in a no-frills service subsidiary of Air Canada called Rouge, which ultimately made those routes and planes profitable.

Air Canada also reached agreements with unions representing both pilots and flight attendants, securing 10-year deals with each, which allowed Air Canada to focus on growing revenue.

 Air Canada’s results

The work that Air Canada has done over the past few years on revenue growth has been nothing short of phenomenal. In the most recent quarter, Air Canada reported record-breaking operating income of $1.004 billion, which handily beat the $896 million reported in the same quarter last year. EBITDAR in the most recent quarter came in at $1.388 billion, reflecting an increase of $140 million over the same quarter last year.

On an adjusted basis, Air Canada realized a net income of $950 million, or $3.43 per diluted share, beating the $821 million, or $2.93 per diluted share reported in the same quarter last year.

Net income for the quarter came in at a record-breaking $1.786 billion, or $6.44 per diluted share, compared with the $768 million, or $2.44 per share from the same quarter last year.

Is Air Canada a good investment?

There’s plenty to love about Air Canada. The company’s maturity and growing balance sheet make the company an alluring investment opportunity, and while Air Canada does not offer a dividend, the 85% growth in the stock price year to date more than compensates.

The company still has plenty of opportunity looking forward to the future as well. Air Canada continues to expand and refresh its fleet, with daily service to Melbourne and new cross-border routes recently being discussed, and the massive CSeries order from Bombardier, Inc. is set to refresh the domestic and commuter networks with a more advanced and fuel-efficient option for the airline.

In my opinion, Air Canada remains an excellent long-term opportunity for those investors seeking growth.

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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

 

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