Westjet Airlines (WJA.TO)

They now have more than one type of aircraft, and instead of just a North American company, they are flying to Europe and want to fly to Asia. Looking at the possibility of ultra low-cost carriers coming in. In the US, the constraining factor is gate capacity at the airports, but it is not as limited in Canada. This company and Air Canada are vulnerable to a well financed ultra low-cost competitor.

Airlines really come down to being a high fixed cost model. On borrowing money, interest rates are low. Also, oil prices are low. They’ve had good growth. Announced they are going to launch an ultra low-cost carrier, which should bode well for them. Be aware that when rates go up and energy prices increase, that will have an effect on airlines.

For the next 3 to 6 months it is hard to see the stock moving up. It has moved up a lot on the expectation that results would be expected to improve. He would not move into it now. Expenses might run up as they acquire 787s for international service.

Its price momentum went sideways for a while. It scores in the top ten in terms of valuation now. 12 times PE and it recently beat expectations.

This just had a positive transit last week up through $24.06. It is up again today at 1.5%. He has a model price of $36.38, a 48% positive differential. As oil prices go down, the fare money falls to the bottom line.

(A Top Pick June 3/16. Up 3.34%.) When he picked this, it was best in class in ROI and the valuation was very reasonable at 3.6X EV to EBITDA, and less than 9X earnings. It is still reasonably valued at 4X EV to EBITDA. However, they missed on earnings. He is no longer in this stock.

What they are looking to do will cost them a lot of money. He likes flying with them, but it does not mean he will buy shares in the company. Air Transat is his favourite Canadian airline.

Low interest rates and low fuel prices are great for airlines and are definitely working for Air Canada (AC-T), and to a lesser degree Westjet. He doesn’t own airlines because it tends to be a high fixed cost model. This airline is getting into a low-cost carrier model, following Air Canada. Pilots are coming into a union, and thinks there are a lot of headwinds on this company.

He is not a buyer of airlines in this environment. (Has never owned stocks.) This is such a cyclical business, and they are subject to large losses. This company has focused on their core niches and have done an outstanding job. Like all companies, they are looking for growth and are starting to fly in all other kinds of places where there is more competition. That is a bit of a warning sign.

*SHORT* This has been a long time Short for him, particularly after the announcement this week that they are now going spend $6.5 billion on a brand-new 787 Dreamliner. A week before that, they announced they were going to launch an ultra low cost carrier. Yield of 2.6%. (Analysts’ price target is $23.)

Airlines are not exactly bastions of free cash flow. They are going to be challenged for the next while, having such a large base in Western Canada. Unless oil comes roaring back, they are going to be challenged for growth and, as a result, will have to move further and further into direct competition with Air Canada (AC-T), which usually never works out well for airlines. There are better names to own.

There is a fair bit of positive news on airlines, including low fuel prices and low interest rates. There is also a positive pick up in economic growth. Times are working in their favour in terms of economic growth, energy prices and interest rates. You have to be really careful for when and if those change.

Doesn’t own airlines, because he always felt it was a difficult sector. Too many variables that can hurt the stock. This has been hurt because of Alberta. If he were going to look at an airline, it would probably be this one, because you are seeing Calgary and oil slowly getting better. These are hard stocks to own, and would suggest using them as a trade, rather than a hold for the long-term.

This airline continues to grow and they are adding new routes constantly. They are relatively fully booked. Profits have been rising. A great name.

The chart shows the downtrend has been broken, and the stock is starting to base. It is fairly progressive with some of the lows getting a little higher. He likes the look of the chart, but would want to see it break out. He likes transports in general for the next few months from a seasonal point of view.