Air Canada (TSX:AC)(TSX:AC.B) is the largest airline and flag carrier of the country. It takes care of the major chunk of the national and international air commute in Canada. WestJet has emerged as a strong competitor of Air Canada in the last decade or so.
Initially, this competition took a hit on the profit maximization of both companies. However, things have changed now.
Both these big stakeholders of Canadian air travel are currently experiencing growth. If we’re talk about Air Canada specifically, it has experienced good stock growth, especially in the last two years.
If you want to diversify your portfolio with some airline stocks, then investing in Air Canada could be a suitable option.
There are good chances that the Air Canada stock will maintain its growth streak this year. These are the three reasons why 2020 can be another good year for Air Canada.
It has held out the Boeing’s 737 Max crisis
Last year, a big setback jolted the commercial aviation industry with the grounding of Boeing’s 737 Max after two of the planes crashed within five months.
This crisis resulted in an abrupt drop in Air Canada’s fleet size of 189 planes, in which 24 were 737 Max. As a result, the company had to incur higher operating costs and reduced profits.
Despite such a setback, the company was able to record a 3% increase in its net revenue in the same fiscal quarter.
Its stock didn’t experience a bearish trend either. In fact, the company has witnessed 91.00% stock growth in the last year.
It shows that Air Canada has a strong foundation that can stop major setbacks without seeing a significant dip in its stock price.
Finances are constantly improving
Air Canada was facing a major debt issue and mounting interest payments three years ago. In September 2016, the airline decided to take the edge off debt and annual interest payments with a $1.25 billion refinancing plan.
From then on, its finances have been on the right track. For example, the airline set the EBITDA target of 5% for the year 2019.
However, it managed to grow this profitability margin by 9%. In the last year or so, Air Canada has also succeeded in cutting down its leverage ratio by 50%, pointing toward better debt management and improved bottom line.
The stock performance of Air Canada also reflects these improvements. The stock price of the airline saw a significant hike in mid-2017, and it has been improving to date. If Air Canada maintains this progress, its credit rating will soon enter investment-grade.
Synergies will further boost the growth
In the last year, Air Canada successfully made the acquisitions of Aeroplan and Transat A.T, a customer loyalty program and a tour company, respectively.
Both pf these acquisitions will increase the net revenue of the airline, as Aeroplan has five million active members, and Transat A.T has a robust worldwide footprint with 20 business units in eight countries.
Recording profits while bearing the brunt of 24 grounded planes demonstrates that Air Canada has a robust and dependable flight operation, pointing to good growth prospects.
Better debt management and winning acquisitions also indicate that Air Canada stock will continue to grow this year.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Jason Hoang has no position in any of the stocks mentioned.