Canadian Airline Stocks February 2024 – Which Rebound Play Is Best?

Posted on February 14, 2024 by Dan Kent
Canadian Airline Stocks

You'd be hard-pressed to find an industry harder hit by the COVID-19 pandemic than Canadian airline companies. And they still feel the impacts in 2023, even with air travel returning.

For one, travel reached a complete standstill as borders closed and international travel was halted. In addition, travel is often booked well in advance. So not only was the forward outlook for Canadian airline stocks crushed, but it also had to dish out some hefty refunds to customers who couldn't go on the trips that had been planned.

Some required government bailouts in order to pay refunds.

But now that the economy is open and more Canadians are travelling again, many investors are asking whether these Canadian stocks and airline carriers are worth the gamble or have been materially impacted by the pandemic.

In this piece, I'll review 2 of the best airline stocks and discuss whether or not they're worth investing your hard-earned money in today. I'll also speak on one to avoid.

Remember, both airline stocks are related to passenger travel, and this list doesn't contain the cargo services and freight company Cargojet (TSE:CJT).

What are the best Canadian airline stocks in Canada today?

Transat stock (TSE:TRZ)

Air Transat

Transat (TSE:TRZ) has been a famous company in the media and Canadian market over the last couple of years. Why? Well, it had gone through a series of failed acquisition attempts by Air Canada (TSE:AC) and, surprisingly, telecom company Quebecor (TSE:QBR.B).

In April of 2021, Air Canada and Transat agreed to terminate the proposed acquisition. More recently, the Quebecor CEO also ended talks with Transat on a potential purchase.

So, as it stands, Transat is going to be kicking around for a while unless another offer comes in. Considering the WestJet and Sunwing deal closed in early 2023, it is possible. So, what exactly does the company do?

Transat specializes in the marketing and distribution of holiday travel. It offers vacation packages to places like the Caribbean, hotel stays, and general airline services under the Air Transat brand.

The pandemic hit the company extremely hard, and the fact it owned a hotel division was a double whammy. So much so that on May 20, 2021, the company discontinued its hotel division due to a lack of liquidity.

How hard did the pandemic hit the company? Transat closed out Fiscal 2021 with revenue of $124.82M. Considering it posted revenue of $2.9B in Fiscal 2019, this should show why the company needed a $700M government bailout in late April 2021 to continue its operations.

However, in Fiscal 2022, the company rebounded in a big way and posted revenue of $1.64B. The issue? Costs continue to sink the bottom line.

The company's balance sheet deteriorates as debt accumulates and capital depletes. For Transat to see revenue growth, people must flock back to travel. Analysts expect more than $3B in revenue in 2023, rising to $3.2B in 2024. How much of that revenue will translate into profits remains to be seen. 

However, I wasn't too much of a fan of Transat, even pre-COVID. There are many more operationally efficient companies in the airline industry here in Canada. Two of which I'm going to go over next.

Air Canada (TSE:AC)

air canada stock

If you're looking for popular Canadian airline stocks, look no further than Air Canada (TSE:AC). It was one of the most popular airline stocks in the world at one point due to the rumoured economic recovery. Traders on both the TSX and exchanges south of the border made this company one of the most heavily traded in North America for short stints.

Air Canada is Canada's largest airline. Before the COVID-19 pandemic, this airline provided passenger services to over 50 million people annually. Not only does it operate regional flights here in Canada but to the United States, Europe, and vacation destinations as well.

The pandemic rocked the company hard, as it saw revenue collapse from nearly $18B in 2019 to just $5.3B in 2020. The company had posted positive free cash flow for three years before the pandemic. Still, losses piled up in 2020, resulting in a negative FCF of over $3.5B.

The situation got so dire that Air Canada began to borrow money against its fleet for short-term liquidity.

Air Canada was one of the world's most efficient airlines before the pandemic, providing investors with industry-leading ROE, ROA, and ROIC numbers.

It's no surprise that until the market crash in 2020, Air Canada had provided overall returns for investors of over 2,360% since mid-2011. It was one of the best-performing stocks on the Toronto Stock Exchange.

In terms of airline bailouts, Air Canada got the premium package. The government opened the potential for nearly $5.4B in low-interest loans. It also took an equity stake in the company of $500M.

So, as the company shored up liquidity, it was all but guaranteed to survive the pandemic and get back on track. But there's no doubt this company's balance sheet has deteriorated, and investors must know that this is not the same Air Canada as before.

The company's retained earnings balance of $3.5B from 2019 has all but evaporated and now sits with a deficit. Debt has ballooned, with the company seeing total debt of more than $16B at one point. The balance sheet is much improved today, with just over $14B worth of debt offset by some $8B worth of cash. 

To put this into perspective, Air Canada has just over $6B in net debt today, compared to $3.3B in net debt in 2019. An investment in Air Canada does have some promise today, considering the inevitable boom in travel bookings and return to normalcy.

However, the company will likely take multiple years to stabilize its financial position, which is critical for investors to understand. An investment made today in Air Canada will require patience and probably a 5-year timeline at minimum.

Onex Corporation (TSE:ONEX)

Onex stock

Onex (TSE:ONEX) is cheating a bit in terms of Canadian airline stocks. The company is a significant asset manager with $50B+ assets and over 39 years of operations. But, it still owns one of the country's biggest airlines, Westjet Airlines.

The company also owns or has a stake in other valuable businesses, including Celestica, Purolator, Canadian Securities Institute, and Cineplex.

Onex's business model is likely to confuse some investors. Because it is an asset manager, when its investments go up in value, it gets to report that as an increase in overall earnings.

However, as we've all witnessed, investments are far from a straight line upwards. So, its earnings can get quite sporadic. What you need to look at in terms of growth from Onex is its book value per share.

Onex's purchase of Westjet just one year before the COVID-19 pandemic was nothing more than bad luck, as it was viewed at the time as a solid acquisition. I was a shareholder of Westjet and viewed them as the best airline in the country.

Westjet mainly focuses on the Alberta market, using the newly expanded Calgary airport as a hub. 

The company is still trading below book value at 0.60 times. Although it may not be a pure play in terms of airline companies, there is no question it will benefit from general economic growth, a trend which will not only help its Westjet investment but others as well. 

Westjet recently got approval to acquire Sunwing Vacations and Sunwing Airlines, officially closing in early 2023. It will move to expand the airline's reach.

Onex is the only company on this list to pay dividends, but the payout is somewhat lacklustre. The dividend yield today is just 0.5%.

Overall, Canadian airline stocks are likely to have rocky times ahead even in 2023

If you're willing to take on more risk, a pure-play Canadian airline stock could be for you. If I were to pick one right now, it would be Air Canada. I've never been a fan of Transat, and the company could struggle even after the pandemic.

However, Onex provides solid value if you're looking for an "all in one" recovery play with some airline exposure.

Check out the top Canadian silver stocks.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Dan Kent

About the author

An active dividend and growth investor, Dan has been involved with the website since its inception. He is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. He has completed the Canadian Securities Course, manages his TFSA, RRSPs and a LIRA at Qtrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.