The airline sector is one which even many of the most prominent investors tend to steer clear of, for good reason. Decades of consolidation have provided a moat for the airlines which remain; however, headwinds related to labour disputes, rising oil prices, and price competition with respect to fares have many investors on the sidelines.
That being said, a significant portion (and I would argue almost all) of the aforementioned profitability-sucking fundamentals of the airline space appear to be priced into most firms, given the current fundamentals of the overall airline space.
In fact, on a comparative basis, Canadian airline Air Canada (TSX:AC) remains perhaps the most undervalued firm in this sector (depending on who you talk to).
With a current price to earnings ratio of just above six times next year’s earnings, Air Canada looks ridiculous when compared to nearly any other company in any other industry. Even compared to its peers, Air Canada remains uber-cheap, leading investors like myself to continue to beat the drum that valuation expansion is likely to be the key driver of Air Canada’s long-term growth story.
Additionally, margin improvements related to a new in-house loyalty program, an updated fleet of increasingly fuel-efficient aircraft, and continued work toward making the airline’s fleet more efficient should bode well for long-term investors.
Air Canada is a long-term turnaround story, and not one for the faint of heart. This company certainly deserves a spot on any watch list.
Invest wisely, my friends.
