WestJet sounds alarm on high fuel costs as Air Canada lowers outlook

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Photo by Artur Widak/NurPhoto via Getty ImagesRising fuel costs are affecting two of Canada’s largest airlines as price volatility remains due to the United States war against Iran.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountOn Thursday, WestJet Group chief executive Alexis von Hoensbroech spoke to the Calgary Chamber of Commerce about high fuel costs and the aviation industry’s ability to absorb price shocks. The Calgary-based airline called for a national strategy to address those mounting cost pressures and “a growing market imbalance” in Canadian aviation.This advertisement has not loaded yet, but your article continues below.WestJet said the industry has faced a demanding global operating environment this year, with transborder demand slowing, the Cuban leisure market remaining closed and geopolitical tensions caused jet fuel costs to double. It said these swings have a significant impact on operations, as fuel is an airline’s single largest expense.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“Canada’s aviation system has very few shock absorbers left,” said von Hoensbroech in a statement.That same day, Air Canada cut its outlook for the full year to reflect its expectation of higher fuel prices for the remainder of 2026, with the airline anticipating approximately half of its fuel requirements for the fourth quarter to be exposed to fuel price volatility.The company, which released its earnings results after the markets closed on Thursday, beat revenue expectations for the third quarter and even reported record third-quarter operating revenues of $7 billion.“Decisive pricing, capacity and cost actions helped mitigate the impact of a $906 million year-over-year increase in fuel expense, with fuel prices 10 cents per litre above our third quarter expectations,” chief financial officer John Di Bert told analysts during the earnings call.This advertisement has not loaded yet, but your article continues below.Despite the stronger-than-expected results, the airline decreased its full-year guidance to between $2.4 billion to $2.7 billion in adjusted EBITDA, down from its previous guidance range of $2.9 billion to $3.2 billion. It also expects to only break-even at around $150 million, instead of its previous expectation of a $200 million to $500 million free cash flow.Previously, Air Canada said it can offset 100 per cent of the estimated incremental jet fuel expense for the fourth quarter of 2026, but now says it can only do so for approximately 70 per cent as estimates run above its previous assumptions.Meanwhile, WestJet said higher jet fuel prices add cost without additional ticket sales, while other costs such as aircraft, crew, airport and navigation remain.“Airlines can recover only part of the increase through fares, leaving thin margins to absorb the rest,” WestJet said.While it urged the government to develop a national strategy to deal with those costs, the carrier called out what it says is “continued market interventions” from the federal government when it hands direct financing to some airlines that result in “unintentionally swayed market dynamics.”This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The company is referring to the federal loans smaller airlines like Flair Airlines Ltd., Porter Aircraft Leasing Corp. and Air Transat A.T. Inc. have applied and been approved for under federal Crown corporation Canada Development Investment Corp. (CDEV)’s Canada Enterprise Emergency Funding Corp. (CEEFC).Within the year, the three airlines have received bailouts through its Liquidity for Airline Sector Resilience (LASR) financing program, which is meant to help eligible carriers address temporary liquidity pressures caused by elevated operating costs, particularly aviation fuel price volatility, by mitigating the impact of aviation fuel price increases.Air Transat and Porter Airlines were each approved for a $150 million loan in a four-year term, while Flair Airlines was approved for a $76 million loan in a four-year term.“We fundamentally believe that governments should not intervene in markets if they want a healthy and competitive industry,” said von Hoensbroech.This advertisement has not loaded yet, but your article continues below.WestJet said self-funding companies, like itself, are left challenged to compete against fares subsidized by public financing. It said that while well-intentioned, that funding is now undermining the entire industry’s ability to recover the cost of fuel and restore financial and competitive health.“WestJet is proud of its three decades of commercially funded growth and absorption of pandemic-era losses without government funding,” the airline said. “The objective… should be durable competition, not a permanent cycle of market intervention.”We apologize, but this video has failed to load.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.