Buy Air Canada stock over WestJet’s, Steve DiGregorio says

WestJet or Air Canada?

It’s the recurring question for both travellers and investors. And while WestJet’s (WestJet Stock Quote, Chart, News: TSX:WJA) fortunes may now be turning for the better, company for company, Air Canada’s (Air Canada Stock Quote, Chart, News: TSX:AC) performance record has been the spectacular one, says portfolio manager Steve DiGregorio of Canoe Financial.

With its ultra-low cost carrier Swoop Airlines now taking flight and a potential pilot strike now averted, WestJet looks to be on the rebound. Yesterday morning, Swoop took to the skies with its first travellers on a trip from Hamilton, Ontario, to Abbotsford, BC. The discount carrier promises to deliver on fares that will be between 30 and 40 per cent cheaper than the national average, starting out with domestic flights between five airports: Halifax, Hamilton, Winnipeg, Edmonton and Abbotsford, and pairing it with Flair Airlines as presently the only two ultra-low cost operations in Canada.

“From our perspective there’s the opportunity to fill a gap, there’s an opportunity to stimulate demand, there’s an opportunity to welcome Canadians back from crossing the border. We believe there’s a significant enough market to be able to thrive,” said Swoop president Steven Greenway to the Globe and Mail.

WestJet’s share price has fallen on hard times in 2018, down 25 per cent on the year. In May, the stock took a big hit as WJA’s quarterly earnings spoke to the impact of the strike threat on the company’s bottom line.

But perhaps a turnaround is on deck for WestJet, says DiGregorio, who argues that with the bulk of the company’s focus on Western Canada, it may benefit as the regions economy picks up.

“I do think most of the headwinds that WestJet has had are behind them now,” DiGregorio told BNN Bloomberg Wednesday. “I also think it’s a good way to play recovery in Western Canada.”

“This is actually an okay entry point for WestJet,” he says. “The valuation is fair. I would just prefer Air Canada over WestJet because the execution at Air Canada has been phenomenal. You’ve gotta give those guys credit, and the stock is still cheap compared to US competitors.”

Although Air Canada had a superb 2017, rising 88 per cent for the year, the stock is now down almost ten per cent over the first half of 2018. The airline reported its first quarter financials at the end of April, posting a net loss of $170 million or 62 cents per share. While traffic increased 11.4 per cent on the quarter, its cost per available seat mile (CASM) rose 2.4 per cent, in part due to fuel costs which increased by 16 per cent.