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12:29 Darcy Keith - Here's a broader question:



12:29 [Comment From ray ]/b>

Steve, how much longer you think this bull market runs from March 6th bottom? Dont you think it is over now, that the ultra perma bear David Rosenberg threw in the towel two weeks ago and went long now? http://www.cnbc.com/id/42782844

12:31 [Comment From Steve Hansen]/b>

Chuckle....I did notice that change of view recently. Our general belief is that the Canadian Industrials universe still has plenty of upside. Most of the macro indicators that we follow closely are pointing the right direction, and valuations still seem quite reasonable. This portends healthy upside in our view.

12:31 [Comment From Steve Hansen]/b>

I will highlight, however, to all of your readers that my lattermost criteria is critical....that being valuation.

12:32 [Comment From Steve Hansen]/b>

Great companies dont always make for great stocks in other words.....

12:32 [Comment From Steve Hansen]/b>

Price is what you pay, value is what you get....to quote a legendary value manager.

12:32 Darcy Keith - Let's switch gears a bit and tackle the airline sector. Here's a question from Anthony

12:32 [Comment From Anthony ]/b>

Just wanted to hear about Air Canada and the global airline landscape

12:33 [Comment From Steve Hansen]/b>

Sure, Air Canada is in a tough spot at the moment. While it has benefitted enormously from the global upturn over the past 1.5 years, it is now facing some pretty tough headwinds.

12:34 [Comment From Steve Hansen]/b>

Much of its growth , for example, is now centered on International markets, where competition is heating up quickly, with many carriers thorowing heaps of capacity at the market.

12:34 [Comment From Steve Hansen]/b>

As a result, the Revenue it gets per seat mile, otherwise known as RASM, has been falling in these international markets.

12:34 [Comment From Steve Hansen]/b>

The Canadian domestic market, on the other hand, continues to be very attractive.

12:35 [Comment From Steve Hansen]/b>

It remains, of course, a comfortable oligopoly for the most part, with Air Canada, WestJet, and Porter largely dominating the market, but staying rationale in the process

12:35 [Comment From Steve Hansen]/b>

This is why we currently favour Westjet

12:36 [Comment From Steve Hansen]/b>

Much to consumers dismay, they have had no difficulty in passing along fuel surcharges to cover the rising costs of jet fuel.....

12:36 [Comment From Steve Hansen]/b>

Hope that helps



12:37 Darcy Keith - Indeed. Do you have any price targets for AC and Westjet?

12:37 [Comment From Steve Hansen]/b>

Yes. Westjet is Outperform rated with a $17.50 target; Air Canada is Market Perform rated with a $3.00 target

12:38 Darcy Keith - Thanks. Just as a follow up on Air Canada....

12:39 Darcy Keith - the airline is considering launching a new discount airline. Do you think this is a wise move, especially the headwinds it faces internationally?

12:40 [Comment From Steve Hansen]/b>

Great question. The short answer is yes, the strategy makes sense, particularly if it can allow the company to reign in its cost structure (which is bloated). However, you must understand that this is the same strategy that is causing tremendous tension with its employees.....

12:41 [Comment From Steve Hansen]/b>

In other words, it is not an easy transition, and may not ever fly...

12:42 [Comment From Steve Hansen]/b>

Time will tell as we continue to watch current labour negotiations closely.

12:42 [Comment From Anthony ]/b>

Thanks Steve. How about the Asian Airlines like Cathay, JAL etc

12:42 [Comment From Steve Hansen]/b>

This is another key "headwind" that I described earlier for AC.

12:43 [Comment From Steve Hansen]/b>

The airline business is not for the faint of heart, but there are regions of the world where strong secular patterns (i.e. rising disposable incomes, deregulation, etc) favour very attractive growth profiles, particularly in the Asian, African, and South American markets.

12:44 [Comment From Steve Hansen]/b>

In general, we tend to favour the low-cost operators in these different regions (and globally), as the margin of safety tends to be higher.

12:45 [Comment From Steve Hansen]/b>

Legacy airlines can have their day (if you want to trade them), but they tend to be very slow moving, with inflexible cost structures that often bite very hard when key factors (i.e. fuel, demand) turn against them

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