Sir Richard Branson famously said, “The easiest way to become a millionaire is to start out as a billionaire and then go into the airline business.” I’m not opposed to investing in airlines, but now does not seem like a good buying opportunity for Air Canada (TSX:AC)(TSX:AC.B), WestJet, considering recent events.
It has been an exciting month for shareholders of the three biggest publicly traded Canadian commercial airlines. Over a one-month trailing period, the share price of Air Canada has risen 26%, WestJet has increased by 58%, and Transat A.T. has shot up 117%. The movement was the result of two big news stories.
For WestJet, an agreement was reached with Onex to acquire and take the airline private for $31 per share. For Air Canada and Transat A.T., exclusive talks were announced that indicate interest for Air Canada to purchase Air Transat and associated travel businesses for approximately half-a-billion dollars and $13 per share. While not yet finalized, both agreements would bring major change to the Canadian aviation industry and could result in only a single publicly traded Canadian commercial airline.
Air Canada has maintained healthy growth predictions for 2020 and 2021 but has recently suspended the 2019 financial forecast due to uncertainty with the Boeing 737 Max 8 aircraft. This should be a strong warning sign to investors that Air Canada expects to take a significant short-term hit from a grounded fleet of 24 Max 8 aircraft.
Considering the stock has risen more than 50% year to date, investors should approach Air Canada with caution and wait for a better entry point. Investors will be able to make a more well-informed decision after the Boeing 737 Max 8 returns to service and Air Canada can disclose the full impact of temporarily losing 24 aircraft.
Where should investors look in the short term? Instead of purchasing a commercial airline, investors should consider CargoJet (TSX:CJT) as an alternative way to invest in the Canadian aviation industry. CargoJet, as the name suggests, is a cargo airline operating in Canada and select international destinations.
CargoJet is well established as the backbone for e-commerce deliveries for all major couriers in Canada as well as the go-to choice for Amazon Prime deliveries across Canada. With the ability to reach 90% of the Canadian population through overnight deliveries, CargoJet has a leadership position in the Canadian e-commerce industry and is looking to grow by taking advantage of new cross-border e-commerce opportunities.
Canadian investors should wait for the conclusion of the Boeing 737 Max 8 saga before purchasing Air Canada stock. Long-term growth prospects remain strong for Air Canada, but investors should anticipate a buying opportunity after Air Canada can better understand the business impact from losing 24 aircraft. CargoJet remains a strong alternative for investors as demand for high-value and time-sensitive shipping continues to increase.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon and CARGOJET INC. Fool contributor Scott Mulligan has no position in the companies mentioned. CargoJet is a recommendation of Hidden Gems Canada.