Should You Buy Airline Stocks in Canada?

Posted on May 11, 2021

Are you looking at the beating airline stocks in Canada have taken and wondering if they are a good buy or not?

Well, if you are a value investor, who believes in buying good companies and holding them for a long time, you won't think twice about airline stocks.

But if you are the kind of person who likes to take advantage of such lulls in the marketplace, then buying airline stocks might be for you.

Not sure about the ins and outs of airline stocks yet? Read on for a brief synopsis on airline stocks in Canada, and how they compare to the American ones.

What Are Airline Stocks in Canada?

The two airlines that probably come to mind when you think Canadian airlines are Air Canada and WestJet, right? Well, if you look at their stock prices, Air Canada has taken quite a pummelling over the past year.

Let's take a closer look at them.

Air Canada

Air Canada Image

Like all airline stocks, Air Canada plunged into the depths of despair due to the pandemic, even though it was flying high before the COVID madness.

In 2019, it bought Air Transat (subject to regulatory approval). And its stock price soared to $51.08. But right now, it's down at $24.12. Although it is up from its lowest point on 20th March 2020, when it was at $12.41.

As you can see, Air Canada has a lot of room for growth. Not only that, with the recent bailouts ($5.9 billion) given by the Canadian government, a lot of investors remain bullish on Air Canada.

It's also the big poobah in the Canadian airline industry, so there's a sense that it will always be around. 

Cargojet

Cargojet Image

Haven't heard of Cargojet before? It's involved in time-sensetive overnight air cargo services, and it has done exceptionally well throughout the pandemic and even now.

It's up 56% on the year! Definitely a Canadian airline stock worth investing in!

Chorus Aviation

Chorus Aviation Image

Chorus Aviation is considered a buy by many investors as well because it's in the leasing business, rather than the operating business, like Air Canada or WestJet are. It's up a sparkling 31% this year.

Onex Corporation

Onex Logo

If you are wondering where's WestJet in this list, well, it's not publicly traded anymore. It was bought out by Onex Corporation. It's not an airline stock, but a large investment company with a market cap of CA$7.6b. 

Historical Performance of Airline Stocks

Since deregulation in 1978, airlines have had favourable conditions for their growth, causing them to buy too many planes and adding too many seats, way too quickly. This lead to many price wars and losses. 

The 2000s were the golden years for the airline industries with mergers galore. Not only that but overexpansion and fare-price cutting put a lot of airlines out of business. 

The airline industry was only responding to the increase in demand of the Baby Boomers and the Gen Xers who had become enamoured with travel and were doing more of it than ever. 

This meant a huge culling down of the airlines in the past 20 years, to the point where we have only a few major players left in the airline industry in Canada and United States. 

During the 2003 SARS outbreak, airline stocks fell rapidly as well, particularly Chinese airline stocks. This happened again during the Swine flu outbreak which came in March 2009 out of Vera Cruz, Mexico. 

Until the 2020 pandemic, the airline industry was flying high with stock prices growing steadily. For example, the all-time high for American Airlines stock was on Nov 24, 2006. It was at $62.95 then. It's at $21.42 in 2021.

Every time there is a global health crisis, airline stock prices drop like flies. No one wants to be holding airline stocks during a pandemic (you would much rather hold a pharmaceutical company then). 

How Airline Stocks in Canada Compare to American Airline Stocks 

Let's look at some American airline stocks to do a compare-and-contrast between America and Canada.

Some major American airlines to pay attention to as investors would be American Airlines, Southwest Airlines, Delta Airlines, and United Airlines. 

The American airlines haven't fared much better than Canadian ones in the whole pandemic showdown. Despite having 10 times as many customers in the United States to contend with, the pandemic was a fair taskmaster. 

American Airlines - down 49.78% YTD

Delta Airlines - down 49.40% YTD

United Airlines - down 59.38% YTD

Air Canada - down 62.38% YTD

Cargojet - up 55.84% YTD

The two American airlines to watch for that have actually come out faring alright are Southwest Airlines and Allegiant Travel. 

Southwest Airlines actually has no debt to speak and $4b in cash! It's down just 36% YTD, which is much better than its American peers. 

Also, Allegiant Travel is the Las-Vegas based airline and it's down just 23% YTD. 

Just like the Canadian airlines, American airlines have received a $25b bailout package to help them while all airlines were grounded during the COVID pandemic. Does this mean that American airlines are a good buy?

What's a Better Choice Here - Canadian or American Airline Stocks?

You might look at airline stocks, both Canadian and American, and think that they are an industry that the governments wouldn't allow to fail, especially considering the massive bailouts. 

If you have money that you wish to put into airline stocks, looking at all the ones to choose from, Cargojet, Southwest Airlines, and Allegiant Travel seems like the most viable option.

Of course, comparing Canadian and American airline stocks is like comparing apples and oranges. The atmosphere for travel in the United States is completely different than in Canada.

Not only is it much more expensive to travel in Canada, but fewer people are travelling in Canada than in the United States. 

There are also fewer Canadian airline stocks to choose from, as there are more than a dozen American airline stocks.

You also need to ask yourself, which economy do you trust more, American or Canadian? Which economy do you believe will bounce back faster than the others? 

Considering that 10% of the American population has already received vaccines, whereas only 1% of the Canadian population has, maybe the American populace will be raring to travel sooner than the Canadian one.

Is Now a Good Time to Buy Airline Stocks?

Are you wondering, should I buy airline stocks right now? If you look at the historical performance of airline stocks, you would probably be staying far away from them.

Not only is the list of airlines that have gone bankrupt long, but they are highly volatile as well highly susceptible to fluctuations in the global market. 

What does this mean for you as an investor? Well, the main idea here is that if you are into long-term buy-and-hold investing, then perhaps, the ups and downs of the airline stocks would be too much for you to handle.

Even Warren Buffet, who is the king of value investing, said in May 2020, that he closed out his positions on airline stocks at a major loss. 

All airline stocks that plunged into their lowest points in March of 2020 have all started coming back up from the depths.

If you look at it from the perspective of humans will always want to travel and fly around the world, then airline stocks are going to be around for a while longer. Always buy travel insurance though if you are going to fly!

How Risk-Averse Of an Investor Are You?

As with all investments, you need to look at how risk-averse you are, and how safe you need your investments to be. 

Scientists are predicting that pandemics such as the Coronavirus are going to become more frequent. This isn't the end as many would like to believe. Does this mean that air travel will become more of a luxury than it is now?

Will it mean that airline stocks were get pummelled repeatedly in the future? Are you ready for that kind of volatility? If you are not ready to lose your money, then perhaps a volatile investment like airline stocks is not for you.

If you are ready to hold until the next big pandemic when you would cut your losses, then go for it! Airline stocks are going to boom until the next global health crisis hits. Take advantage of that boom until it bursts.

Buying Stock in Canadian or American Airlines Is a Risky Business

Holding airline stocks in Canada or the United States isn't for the faint of heart. It is definitely not for the long-term investor. 

If you are looking at the much-reduced prices of Canadian and American airlines and thinking that they are at a bargain, then check yourself. Consider buying them only if you are prepared to unload them at the next crisis.

Life in the 2020s seems to be a rollercoaster ride, for which no one is really prepared, let alone the airline industry who has been hit the hardest. 

If you want to keep some semblance of control in your life, check out Insurdinary's insurance for Canadians, where you can compare and find the lowest rate for you! 

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