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Take a pass on WestJet, this Scotia Wealth PM says

WestJet competitive advantage

Ahead of next Tuesday’s earnings report from WestJet Airlines (WestJet Stock Quote, Chart: TSX:WJA), investors will be looking for some good news from the company which this year has been dealing with turbulence on a number of fronts, all the while attempting to expand its international footprint and launch a new discount carrier. Factor in the innate volatility of the airline sector and you’ve got a lot of red flags, says Scotia Wealth portfolio manager Cole Kachur, who thinks WestJet is susceptible to a lagging Canadian economy.

WestJet broke its string of 52 consecutive quarter of profitability this past August when it reported a $20.8-million loss for its second quarter. The company said that its fuel costs had jumped 31 per cent while also pointing to increased competition in the Canadian market.

But an ongoing dispute with its pilots has also impacted WestJet’s bottom line, as recently admitted to by president and CEO Ed Sims who said that even after agreeing to a arbitration process in May, the company is still feeling the fallout.

“Guests will typically book up to six months ahead, so I think we were still living with some effects of that as recently as the last few weeks,” said Sims, as reported in the Calgary Herald earlier this month.

In terms of its share price, WJA had a successful 2017 but this year has been a different story. Now sitting in the $19.00 range, the stock is now down 27.5 per cent for the year.

But investors hoping for a cheap pickup in WestJet should probably keep looking, says Kachur.

“It’s not something that I’ve owned and I probably wouldn’t own it at current levels,” says Kachur to BNN Bloomberg. “I think there are a couple of headwinds. I’m not sure the Canadian economy is quite as strong as what the numbers are showing and the government is saying and I think that with rising oil prices, even though we don’t necessarily see them in Canada, it does raise their costs of inputs significantly.”

“There’s nothing wrong with the company,” says Kachur. “It’s well-run, well-managed. I just feel that on a relative basis, there’s probably better areas where you could put your money right now.”

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About The Author /

Jayson MacLean
Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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