United Continental Holdings Inc (UAL), Southwest Airlines Co. (LUV): A Look at Foreign Airlines, Part 2: Canada

Page 1 of 2

Investors looking for North American airlines would typically think of the biggest carriers, all U.S.-based, that dominate the industry. But each of the two major airlines in Canada offers investors a unique choice about which model of the airline industry investors are interested in investing in.

The big legacy carrier

Originally a government-owned airline, Air Canada is Canada’s largest carrier, and among the largest airlines in the world. The airline dominates Canada’s international travel segment, has entered the Star Alliance alongside United Continental Holdings Inc (NYSE:UAL), and is modernizing its fleet by spinning the older aircraft off into a new low-cost subsidiary.

United Continental Holdings Inc (NYSE:UAL)

But while Air Canada looks strong in size, it has been run through bankruptcy like other legacy airlines, and it continues to face problems relating to uneasy worker relations and a massive pension liability. Shares slid to under a dollar in mid 2012, but recovered into the CAD$3 range before sliding back into the CAD$2 range after disappointing Q1 earnings and capacity concerns.

While Air Canada has the problems associated with legacy carriers, it stands to benefit from a leading position in international routes compared to rival Canadian carriers. To further strengthen its international presence, Air Canada is adding capacity in the international and overseas flight segments.

One area of particular interest is Air Canada’s new low cost unit, Air Canada rouge (with a lowercase r), which will have lower-priced flights from Canada to Europe among its offerings. International flights should see a boost during an economic recovery as leisure and long distance business travel picks up. As a result, investors looking to bet on Canada’s legacy carrier and its ability to benefit from an economic recovery may be interested in shares of Air Canada.

The airline challengers

In the U.S., Southwest Airlines Co. (NYSE:LUV) has made major moves into the larger American air travel market after expanding from being a Texas-only airline in its early days. While other carriers have declared bankruptcy (sometimes multiple times), Southwest Airlines Co. (NYSE:LUV) has shown nearly 40 years of straight profitability and even rewards its investors with a small dividend.

In Canada, WestJet is taking on the giant Air Canada following much of Southwest Airlines Co. (NYSE:LUV)’s path. WestJet has undergone rapid expansion, kept its house in good financial order, and pays a larger dividend than Southwest Airlines Co. (NYSE:LUV).

But not everything is the same between the two airlines. WestJet is a rare non-union airline, while Southwest Airlines Co. (NYSE:LUV) is heavily unionized (but has managed to maintain good worker relations). Southwest Airlines Co. (NYSE:LUV) is also a much larger airline by market capitalization, and it recently completed a merger with Airtran to increase its size.

WestJet plans to continue expansion, with possible future plans including increasing international flights and the option of an eventual merger. In the meantime, WestJet is continuing what is being called its “March to the East” as the airline looks to join rivals in operating flights out of the Toronto City Airport.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!