Westjet Airlines (WJA.TO)

Got beat up a little bit today. Reported slightly lower load factors for March, and a bunch of short term investors/speculators were dumping the stock. Trading at 8X earnings. A dividend payer with a growing dividend stream. This is the 10% of the airline industry that you can actually invest in. Good investment long-term, and right now it is trading at a discount. This is a great opportunity.

One benefit this has seen with a lower oil prices is that they haven’t passed this on to consumers. As far as hedging goes, they can go out fairly far, 1 or 2 years. This is exceptionally well-managed for an airline. This would be an okay spot to get in if you are inclined.

It has come off a bit after doing very well. It is the perpetual problem with airlines where they overbuild capacity and demand is not there to keep it up. They are expanding into more holiday travel. It sold off on the Western Canada worries and he thinks it is overdone. They have this economy of premiums and they continue to find ways to add to their revenue line. The risk is if the economy turns down and air travel falls.

The airline industry has gotten a lot better in Canada and the US. Load factors are a lot higher. Fuel is much cheaper. Fuel surcharges are still on the ticket and now baggage charges.

A lot of people prefer Air Canada (AC-T) currently. Both companies benefit from lower oil prices. The one issue she would have with West Jet is that a lot of their routes are based out of Alberta, so there could be some weakness in terms of frequency and load factors. In the short term, she is indifferent, but on the long run she prefers West Jet to Air Canada.

3.287 % bond maturing July 23/19. (He is biased towards the short term because the market still feels fairly expensive. Corporate credit still offers pretty good value.) This is basically a four-year piece of paper yielding 2.5%, but this is an investment great company. Airlines benefit from lower oil prices, which is another reason he likes this one.

You have to look for industries that have a tailwind in the current environment. The airline sector is performing extremely well as a whole. When consumers have a little more money, they travel. When business is stronger, people travel. Also, we always benefit when the price of fuel goes down.

Airlines right now are going to benefit from lower jet fuel prices, which is one of their major inputs. The other 2 major costs for airlines are leasing their planes and labour costs. This company has most of its fleet lease off its balance sheet. Right now he would say this is probably the most profitable period we have seen for world airlines in recent memory. However, he will not give up his pledge to never buy airline stocks.

Chairman has trimmed his personal stake by over $40 million, but still owns over 1% of the company. If this was because of tax planning, which it often is, that is a fair enough reason. If you see more than one insider, particularly the CFO, that would be a worry. This doesn’t change his opinion. In the Canadian Airlines, you are seeing an expansion. This one has no union and strong growth ahead of it. Low cost base because of its model. Thinks this continues to grow.

Airlines have been doing really well, partially due to the growing economy, but also a decline in energy prices. In Canada, airlines seem to be doing fairly well. Load factors are high. The question with this company is where do they expand to. Thinks generally there will be a positive outlook on airlines for the foreseeable future.

A little more defensive than Air Canada and in better shape with newer planes and no unionization. Not only has there been a pullback in price on the stock, but there has been a pullback in fuel, which is the largest operating cost. On a forward basis, they trade from 4.5% to 7.5% X EBITDAR (the “R” is for plane rentals). Also, it has been oversold. Yield of 1.53%.

Airlines are part of the transportation sector, which tends to do well from October into November. There have been a lot of things happening in the airline industry including Ebola, currency, oil prices, but airline stocks have actually done quite well. Seasonally the transportation sector will be fading away in a few weeks time. Well-run company and is performing quite well. Have a lot of things going for it. Have increased baggage fees and fuel costs have dropped substantially. If it starts to underperform in the next few weeks, he would pull out.

There is always room for a correction in any long term uptrend. If you are longer term it does not look like a bad picture.

Does not see an acquisition. In the end, the airline market in Canada has gotten a lot better. Planes are fuller and earnings are improving. AC.B-T has more torque to the upside so he owns that.

Generally the airlines have done extremely well over the last year or so. Doesn’t like participating in the airline industry. Thinks they will be squeezed a little by fuel costs, particularly in Ontario with their proposed tax on jet fuel. Airlines in general have extremely high capital costs and are extremely expensive to run. This is not an area that he would be jumping into.