But appearances can be deceiving. It is far from certain that the airlines will resume their normal operations when COVID-19 is completed. The new regulations and the distrust of passengers could keep them anchored for a long time. In addition, airlines could suffer lasting financial damage as they try to get through this period of declining revenues. This is one of the main reasons why Warren Buffett sold his entire position in airline stocks in the last quarter.
But not all airlines are created equal. As I wrote in previous articles, airlines that ship goods are in a better position than airlines that transport people. One of these airlines today released its first quarter results. And they were absolutely phenomenal.
Cargojet (TSX: CJT) is a small freight airline based in Ontario. It ships goods to Canada and, to a lesser extent, abroad. His specialty is small overnight shipments. This focus on small packages means that it receives a lot of e-commerce orders. So it benefits from the same trend as sending titles like Amazon to skyrocket.
The first clue that CJT was going to do well in the first quarter came a few weeks ago. The company released a press release indicating that activity has increased due to increased e-commerce shipments. When passenger airlines asked the government to help them survive, Cargojet said it needed help to meet the demand!
It was encouraging, to say the last. And earlier today, CJT confirmed its first-quarter boost with a stellar earnings release that showed improvements on virtually every measure. Turnover is up 12%. Gross margin is up 51%. Adjusted EBITDA was up 24.5%. Operating cash flow increased by 66%.
The only sore spot was GAAP earnings, which stood at – $ 1.8 million. However, this was mainly due to non-monetary items, such as depreciation. Net cash provided by operating activities was $ 40 million compared to $ 24 million in the same quarter a year earlier.
Why he outperformed
The reason Cargojet outperformed other airlines in the first quarter is quite simple: it ships goods rather than people.
Almost all of the restrictions currently weighing on airlines are linked to the transmission of disease. As international travel is a major vector of disease, airlines have had to close international routes. You can’t get away socially in a cramped plane, so the airlines had to limit the volume of passengers.
None of the above factors apply to Cargojet. As a cargo airline, its typical flight consists only of a pilot, a co-pilot and a stevedore – the person responsible for loading and unloading the cargo. It’s a day and night difference from a passenger airline. This means that CJT can operate normally during COVID-19, unlike Air Canada. Add to that the company’s focus on e-commerce shipments and you have a recipe for success.
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John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a member of the board of directors of The Motley Fool. Crazy contributor Andrew Button has no position on any of the titles mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon and CARGOJET INC and recommends the following options: short calls from January 2022 $ 1940 to Amazon and long calls from January 2022 $ 1920 to Amazon.