Air Canada's 4Q Fuel Costs Too High to Offset

Dow Jones10-15

1354 ET - Air Canada is set to face margin pressure from higher-than-expected jet fuel costs, according to National Bank of Canada analyst Cameron Doerksen. He notes in a report that jet fuel averaged C$1.55 a liter in 3Q, up from C$1.46 in 2Q. By comparison, Air Canada's internal guidance assumed fuel would average C$1.38 a liter in 3Q and C$1.29 in 4Q. While higher fuel expenses will weigh on 3Q profitability, Doerksen says "the bigger headwind concern is for 4Q as the current spot price of jet fuel is C$1.89/liter." Although Air Canada expects to recover about 60% of higher fuel costs through higher passenger yields in 3Q and roughly 100% in 4Q, Doerksen thinks the airline is unlikely to fully offset the higher fuel costs during the period.

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