What Air Canada’s Cargo-Only Flights Mean for Investors

Air Canada (TSX:AC) continues to generate buzz. Here’s the latest reason why this stock could break out in the latter half of 2020.

| More on:

From grounded fleets to reduced capacity, airlines are facing a tough second half of the year. The push for relaxed pandemic measures regarding flights could see some improvement in this space. Then again, a reopening could bring a fresh wave of infections, setting North American economies back even further. However, things could be about to change for a key player in the commercial flights space — and it has nothing to do with passengers.

The news came out last week that Air Canada (TSX:AC) is getting in on the cargo-only flights business. It’s a model strikingly similar to that of a high-growth name that hit new heights last week. Indeed, Cargojet’s (TSX:CJT) model has proved extremely popular with investors seeking strong names in the logistics sector. To give some idea of scale, Cargojet stock is up 81% in the last three months.

A case of reflected glory?

So, can Air Canada hitch a ride on Cargojet’s upside? There is market share to be captured, and Air Canada, with its grounded planes, is perfectly positioned to capitalize. Residential orders are rising, causing turbulence in the shipping space. Further disruption is coming from competing airlines. The entire flight industry has become a dangerously competitive, with revenues slashed by the pandemic.

Importantly, consumer demand is also rising, with online retail fueling household orders. From hoarding to home renovation, the pandemic has seen consumer behaviour evolve in fast-moving ways. The health crisis is also fueling hospital orders, with shipments of medical materials and equipment soaring. The sales boom is putting planes in the air and adding jobs to the market.

Indeed, part of the new model centres on medical supply shipments. This may help to reposition Air Canada as a defensive play. All told, Air Canada’s new direction could deliver a much-needed boost to its finances.

A stock full of upside potential

Freight and package delivery have emerged as fairly pandemic-proof businesses. Of interest to both value and growth investors, though, is just how much upside there could be in this space. Air Canada’s share price has been extremely volatile in the past year. The last three months have seen the flag-carrying airline shoot up an incredible 47%. But it’s down 52% for the year. Talk about turbulence.

Retooling for emergencies is part of the long and storied history of air travel. So, it shouldn’t be too surprising that Air Canada is reorienting itself for air freight during the pandemic. That said, though, it seems almost revolutionary to see Air Canada tapping opportunities in the courier shipment space. And more surprises are on the way, with fall shaping up to be a big test of public demand for air travel.

Trusting the current trends means accepting that the ongoing social-distancing situation is a long-term economic factor. Doing so effectively means betting on the sustainability of upside in affected sectors. A range of business models have proven suddenly indispensable during the public health crisis. However, the market crash has also created potential unloved growth opportunities for long-term investors.

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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC.

More on Stocks for Beginners

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

Asset Management
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Thinking about what to buy with the new TFSA contribution space in 2025? These four Canadian stocks are worth holding…

Read more »

concept of real estate evaluation
Stocks for Beginners

2 No-Brainer Real Estate Stocks to Buy Right Now for Less Than $1,000

These two real estate sector-focused stocks have the potential to deliver strong returns on your investments in the coming years.

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »