Why Air Canada trails US rivals in passing on fuel costs

Executives say network differences and booking trends limit their ability to recapture fuel costs.
Stubbornly high fuel costs are testing airlines’ ability to raise fares.

Air Canada now expects to recapture only about 70% of elevated fuel prices through ticket sales in the fourth quarter, the carrier said in its third-quarter earnings report on 29 October.

Mark Galardo, the airline’s chief commercial officer, says Air Canada’s focus on long-haul routes gave it a disadvantage against US peers.

“We’re almost 60-40 long haul to short haul,” he said on a conference call. “Our American peers are typically 30-70, and the close-in booking window for North America allows a higher recapture.”

Long-haul flights are typically booked farther out than short-haul or domestic trips, meaning there’s less opportunity for an airline to raise fares to match the current fuel environment.

For the third quarter, Air Canada recaptured 46% of incremental fuel expense where it had expected 60%.

Fuel remains near record highs

The price of benchmark WTI crude has steadily risen back to near record highs through the end of summer as the US and Israel’s war with Iran drags on. Jet fuel now sits just below all-time highs set in April, up 118% over a year ago, according to IATA data.

“When fuel spiked in September, approximately 50% of our fourth-quarter bookings had already been sold, creating a natural lag before our pricing actions could be fully reflected in fares,” says chief financial officer John Di Bert.

Across the industry, expectations of full fuel recapture have largely slowed as airlines grapple with sustained elevated prices.

United Airlines, Air Canada’s joint venture partner, had forecast in July that it would recover 80-90% of higher fuel costs in the third quarter and all of them by the fourth. It recaptured 72% in the third quarter and now expects a similar rate in the fourth, pushing its 100% target into 2027.

JetBlue Airways, which recaptured about 87% in the third quarter, is also aiming for full recapture by early 2027.

“Our objective remains to achieve full fuel recapture over time,” says Di Bert. “While fare increases remain the primary tool to offset a higher fuel environment, we will also pace our growth to protect unit revenues and margins through 2027.”

Cargo exception

One bright spot was cargo, executives say, where bookings are generally quite close in, helping fares cover very close to 100%.

One big question remains for all carriers: how much fare increase will consumers tolerate?

“When you have a sudden fuel spike like this, carriers around the world are testing the elasticity of demand,” says Galardo. “Once they feel that the elasticity is certainly on side, they will float further increases in.”

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