At the beginning of 2020, Air Canada (TSX:AC) had a market capitalization of nearly $21 billion. At writing, Air Canada’s market cap is below $5 billion.
The company has slashed its workforce, suspended routes, and is looking to the government for financial aid. Overall, Air Canada has trimmed its operations by 90% since last month.
When the company releases its quarterly earnings on May 4, analysts are anticipating an approximate 18% drop in revenue from the previous year. No one knows how deep the carnage at Air Canada will be or how long the coronavirus impact will last.
If these numbers scare you, you are not alone. But rather than giving up on the entire industry, consider one stock with great potential during the pandemic and after.
Cargojet (TSX:CJT) is best known as a leading provider of time-sensitive overnight cargo. This business, as well as the company’s ACMI business (in which aircraft, crew, maintenance, and insurance are leased), has been growing every year.
With the ongoing pandemic, however, Cargojet has quickly been able to redeploy its aircraft to support massive increases in volume for e-commerce, healthcare, and essential supplies to combat the coronavirus outbreak.
As of this writing, the stock is trading at $124.36 — up from a share price of $105 at the beginning of the year.
In late 2018, Cargojet’s market capitalization hit $1 billion for the first time. Today, Cargojet has a market cap of over $1.9 billion!
Even before the pandemic, Cargojet’s business was booming due in large part to the company’s e-commerce services. Last year, Cargojet’s total revenue was $486.6 million, an increase of 7% over the prior year.
Currently, the company represents over 90% of the domestic overnight air cargo lift available in Canada. Prior to the COVID-19 outbreak, the percentage of e-commerce shopping in Canada as a percentage of total sales was expected to grow 4.7% CAGR through 2024.
Due to the pandemic, however, this percentage will likely increase as consumers get accustomed to shopping online, which translates to even greater domestic opportunities for Cargojet.
Not only is the company’s transport business growing, but Cargojet’s ACMI business posted growth of approximately 40% over last year. The ACMI business is especially beneficial to the bottom line, as this business provides higher margins. Costs such as fuel, landing fees, and ground handling are charged directly to the customer.
Less than two years ago, Cargojet made the wise decision to diversify into several key businesses, including ACMI, to reduce the dependence of a single business on revenue. The strong revenue growth in the ACMI business proves this strategy is paying off.
To meet the increased demands of the ACMI routes between Canada, the U.S., and Mexico, Cargojet added a sixth route in the fall of 2019. The new route is expected to generate approximately $11 million in annual revenue.
The bottom line
There is no doubt that Air Canada will survive the current crisis and emerge as a leaner, stronger airline. The question is not if this will happen, but when this will happen.
In the meantime, investors have another option. Cargojet has seen it business boom during this challenging time.
Cargojet was well-prepared for a surge in e-commerce in 2020 and has been able to aptly transition its fleet to help meet timely demands of medical supplies needed for the pandemic.
This should translate into increased business, not only during the pandemic, but when the crisis eventually subsides.
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 Cindy Dye has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC.