Should a WestJet Strike Scare You Away From Airline Stocks?

A WestJet strike could further hurt ONEX Corporation (TSX:ONEX) stock, but I still like Air Canada (TSX:AC) and Cargojet Inc. (TSX:CJT).

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The Canadian airline industry passed through one of the worst crises in decades as the COVID-19 pandemic grounded plans and virtually put a halt to the bulk of international travel on and off for nearly two years. At the time, the industry predicted that it would take three to five years before fully recovering.

Today, I want to discuss the ongoing labour dispute between WestJet pilots and their employer, ONEX Corporation (TSX:ONEX). Shares of WestJet’s parent company have dropped 7.7% so far in 2023. Should this potential strike action steer investors away from the airline space? Let’s jump in.

What are the chances of a pilot strike at the time of this writing?

Recent reports continue to indicate that more than 1,000 WestJet pilots are preparing to move forward with strike action before the end of this month. The union has claimed that employees have been overworked and underpaid, while the airline has contradicted these claims.

The Canadian Transportation Agency has experienced a huge uptick in complaints in recent months. In December, more than 2,000 people filed complains against WestJet after the airline refused to compensate passengers following a major snowstorm that resulted in a slew of flight cancellations.

WestJet pilots may go on strike as soon as Tuesday, May 16. Investors will get a better idea of the situation, as negotiations press on. May 13 is a key date, wherein pilots could issue a 72-hour strike notice. This strike could result in substantial lost revenue for WestJet, and with the airline not far removed from the catastrophic pandemic.

Here’s how this could impact the broader airline industry

Should investors be worried about other airliners? Indeed, Air Canada (TSX:AC) has climbed 10% in 2023 as of close on May 9. The country’s top airliner has posted a strong recovery with passenger traffic and earnings rebounding nicely. In the first quarter (Q1) of fiscal 2023, Air Canada boosted its earnings outlook by $1 billion in response to improved demand.

ONEX is set to release its Q1 fiscal 2023 earnings in the days ahead. In fiscal 2022, WestJet’s parent company posted net earnings of $235 million, or $2.77 per share — down significantly from $1.40 billion, or $15.76 per share, in the prior year. Shares of ONEX currently possess a solid price-to-earnings ratio of 16 and a very modest quarterly dividend of $0.10 per share.

Air Canada certainly looks like the much stronger contender in the first half of May 2023. That will only be exacerbated if the two sides of WestJet and its pilots fail to reach a deal in the coming days. However, there is another airliner that I prefer over both right now.

I’m looking at this exciting market as an alternative in the spring of 2023

Cargojet (TSX:CJT) is a Mississauga-based company that provides time-sensitive overnight air cargo services in Canada. Its shares have dropped 1% month over month as of close on Tuesday, May 9. The stock is down 7.3% in the year-to-date period.

This company released its Q1 fiscal 2023 earnings on May 1. Cargojet reported net earnings of $30.5 million — up from a net loss of $56.4 million in Q1 fiscal 2022. Its adjusted free cash flow remained largely flat at $42.5 million.

Shares of Cargojet currently possess a very attractive price-to-earnings ratio of 6.9 at the time of this writing. Moreover, this TSX stock offers a quarterly dividend of $0.286 per share, which represents a 1% yield.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cargojet. The Motley Fool has a disclosure policy.

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