Better Buy: Air Canada Stock or WestJet Stock?

Investors attempting to decide between investing in Canada’s top two airlines certainly have a difficult decision on their hands.

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The aviation industry was hit the hardest during the pandemic, so much so that the impact can still be felt in 2023. However, the market has been recovering, and the financial quarterly reports have mostly surpassed the analysts’ estimates. 

The cycle of the market is unpredictable. But, as of now, the airline stock market is heating up as the economy is opening up, and the market is coming back to normalcy. However, not all airline stocks are hitting the high bar. But these two stocks can be better buys. 

Air Canada 

Air Canada (TSX:AC) has seen strong growth, with a 44% increase in revenue and an 86% increase in adjusted earnings over five years. The pandemic caused a 67.5% drop in the value of stocks in Q1 2020. 

Air Canada’s share price has risen 49% over the past year, outperforming the market’s return of 6.7%. Over the past three years, shareholders have enjoyed a 48% increase. The company’s remarkable 129% revenue growth last year outperformed most competitors.

Despite the impressive share price growth, it may not fully reflect the strong revenue growth. With a total annual return to shareholders of 49%, better than the five-year return of 3% per annum, the stock’s recent performance suggests improvement. Given the strong momentum, it’s worth keeping a close eye on the stock for potential investment opportunities.

Analysts predict earnings will surpass pre-pandemic levels in 2023, making AC stock an attractive long-term investment for growth investors.

WestJet Airlines 

WestJet Airlines, a subsidiary of Onex Corporation (TSX:ONEX), is the second-largest Canadian airline, headquartered out of Calgary, Alberta. The company offers comprehensive travel services, including WestJet Vacations for air, hotel, car, and cruise packages. In 2013, WestJet introduced Encore, a regional airline using Q400 turboprops for smaller destinations. 

WestJet has expanded its service to more than 100 destinations in North America, Central America, the Caribbean, and Europe. In 2017, the company reported revenues of approximately CAD 4.5 billion. In addition, WestJet launched an ultra-low-cost carrier called Swoop in 2018.

WestJet Airlines plans to integrate its subsidiary Sunwing Airlines into its core business within two years after consolidating its budget subsidiary Swoop. The move aims to streamline operations and is part of a cost-cutting strategy. 

Despite potential benefits such as a larger fleet and more pilots, some experts, including McGill University’s John Gradek, are concerned about limited choices for consumers and possible price increases due to industry consolidation. 

WestJet’s decision comes after it reached a new deal with pilots that includes a 24% pay increase over four years. The airline, owned by Onex Corp, recently acquired Sunwing’s main airline and vacation divisions for $5 billion in 2019.

Bottom Line 

Both of these airlines have given market-breaking performances before, and analysts predict that they still have the potential to give similar performances. Hence, these stocks will make good additions to your portfolio, at least for those looking to ride a potential economic bump higher into next year.

That said, if I had to pick between the two, Air Canada’s premier market position and international docket of flights would make this airline my top pick.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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