The airline industry has been facing considerable turbulence ever since the pandemic began and the 2020 stock market crash took hold. The recovery since the 2020 meltdown has certainly not been felt evenly, with some airline stocks flying higher while others struggled to lift off the tarmac. Indeed, shares of Air Canada (TSX:AC) found themselves in the latter category.
Despite management’s efforts, the internationally focused Canadian airline has really had a tough time sustaining gains amid turbulence. Here we are, years after the great reopening from COVID, and AC stock has still been “dead money,” so to speak. But with summer travel season getting hot, questions linger as to whether AC stock is now a timely play or if it’s one that should be left alone as the shares continue to fail to launch.
Though the airline scene still faces many headwinds, the cargo airline scene continues to be lucrative, especially as consumers start spending more heavily again. Undoubtedly, cargo airlines may very well be a better bet right here, given the consumer’s resilient state and the implications of coming rate cuts.
More rate cuts could mean more money in consumers’ pockets to splurge on goods online that need to be shipped overnight. In any case, let’s have a closer look at the two airline plays to determine the better bet for the next three to five years.
Air Canada
The troubled airline is down around 7% year to date, putting it off more than 66% from its 2020 all-time highs. Indeed, the stock has not gone anywhere fast, and with shares fresh off a brutal past-year slide, investors may be inclined to view the name as more of a value trap. Indeed, there are so many U.S. airlines that are in a better spot right now. But is it worth it to switch airline stocks at this pivotal moment?
I think sticking with AC stock could prove wise, especially as the firm does its best to increase flight capacity and expand upon routes. We’re not just talking about adding new domestic flights, either. Air Canada could benefit greatly from the extension of a summer-fall travel boom as it seeks to add more flights to popular summer destinations like Florida.
Though traveller demand could fluctuate wildly heading into the fall, I certainly wouldn’t bet against AC stock right here. It may have quite a bit of short interest, but betting against the name could prove disastrous if the firm can move past temporary headwinds (think labour disputes) while continuing to improve operating efficiencies. All considered, AC stock is a good value, but only if you’re willing to play the long-term game.
Cargojet
Cargojet (TSX:CJT) stock has been under pressure but for vastly different reasons. Consumers have been feeling pains amid inflation, but with prices potentially on the backtrack, perhaps CJT stock may have a chance to soar again.
Like Air Canada, Cargojet has prioritized cost and air fleet management amid challenging times. Though management can’t control consumer spending patterns, they can prepare for better times while taking steps to navigate a rough patch of headwinds more effectively. Though it’s hard to tell when consumers will spend more online, I view CJT stock as undervalued at 27 times forward price to earnings (P/E). I don’t think it will take long for e-commerce to bounce back, and with that, overnight cargo shipping.
Bottom line
Between AC and CJT, I’d have to go with the latter. It’s a growth-driven business that can win big once consumers feel better about the economy and inflation again.
