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Why You Should Forget About Air Canada (TSX:AC)

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Air Canada (TSX:AC) was once viewed as one of the best long-term options on the market. The airline was flying to more destinations and posting record-breaking profits. Unfortunately, between the 737 MAX fiasco and the COVID-19 pandemic, that growth has come to a halt. To be fair, Air Canada isn’t alone. The pandemic has impacted every single business.

Still, some investors see the stock as a lucrative long-term holding. I think investors should forget about Air Canada and consider Cargojet (TSX:CJT) instead.

Why Air Canada doesn’t make sense

First and foremost, let’s just say that Air Canada moves people. Yes, the airline does haul cargo as well, but the airline is focused on passengers. Now consider this new (albeit temporary) COVID-19 world that requires six feet of space between people. The idea of tightly packing passengers in a steel tube with recycled air doesn’t seem appealing or safe.

In other words, until we have a vaccine that has been administered to large parts of the population, demand for air travel will remain low.

Those troubles are compounded further when considering international travel. International travel is at a minimum during the pandemic, and regulations vary with each country.  In short, there’s a confusing myriad of regulations and testing procedures that can make connecting flights (and the lucrative revenue they once represented) a thing of the past.

That’s not to say that Air Canada won’t weather this crisis. Air Canada will overcome and become profitable like it was before. The real question is when. Multiple versions of the vaccine are nearing approval. Some say that it could take as much as a year to inoculate most of the population. It could be another year on top of that before global markets begin to open again to international travel.

In other words, investors should forget about Air Canada for now and focus elsewhere…

Why Cargojet does make sense

As its name implies, Cargojet hauls cargo. In fact, Cargojet hauls a lot of cargo. When the pandemic began, consumers largely stopped shopping in-person and turned to online retailers. That bump in e-commerce led to a wave that Cargojet has been riding since then.

That bump was evident in the most recent quarterly update. During the most recent quarter, Cargojet reported revenue of $162.3 million. In the same quarter last year, Cargojet reported just $117.4 million. Adjusted EBITDA for the quarter came in at $78.1 million, compared with $39.1 million reported last year.

Further to this, those amounts are expected to increase further in the next quarter thanks to a strong holiday season. In fact, Cargojet announced this week that it was increasing its workload partnership with DHL express, adding an additional three international. The routes will be serviced by Boeing 767-300 freighters.

Speaking of holiday sales, let’s not forget that internet commerce behemoth Amazon.com is already invested in Cargojet. The current 9.9% stake in Cargojet can easily swell to 14.9% if the relationship between the two continues to prosper.

You should forget about Air Canada

Year-to-date, Cargojet has seen its stock surge 98%. Air Canada on the other hand, is still in the red, down over 45% year-to-date. While no stock is without risk, Air Canada seems like the riskier investment at this juncture. Similarly, Cargojet has a more certain path to further growth.

In my opinion, Cargojet is a great long-term investment that could benefit any portfolio. Investors should forget about Air Canada as a cornerstone of a growth portfolio, at least for the moment.

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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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and CARGOJET INC and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon.

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