Rising Fuel Costs Squeeze Canada's Largest Airlines as WestJet Calls for National Strategy
Geopolitical tensions involving the United States and Iran have driven jet fuel costs higher, prompting Air Canada to lower its full-year financial outlook despite record third-quarter revenues. Meanwhile, WestJet's CEO called for a national strategy and criticized federal loans to smaller carriers.
Canada’s largest airlines are facing mounting financial pressure as geopolitical tensions stemming from the United States war against Iran drive up fuel prices. WestJet stated that these geopolitical factors have caused jet fuel costs to double this year, affecting carriers across the country.
WestJet Group chief executive Alexis von Hoensbroech addressed the Calgary Chamber of Commerce on Thursday, speaking about the impact of high fuel costs and calling for a national strategy to manage the pressures facing the aviation industry. During his remarks, von Hoensbroech also criticized the federal government for providing direct financing to smaller competitors, describing the support as "continued market interventions."
Under the Liquidity for Airline Sector Resilience (LASR) program, Air Transat A.T. Inc. and Porter Aircraft Leasing Corp. were each approved for a $150 million loan with a four-year term. Flair Airlines Ltd. was approved for a $76 million loan, also with a four-year term. WestJet contends that such subsidies create an unlevel playing field and undermine broader industry recovery.
Simultaneously, Air Canada cut its full-year outlook to reflect expectations of higher fuel prices for the remainder of 2026. The airline reported record third-quarter operating revenues of $7 billion, but rising expenses weighed heavily on its projections. Air Canada CFO John Di Bert noted a $906 million year-over-year increase in fuel expense, with prices coming in 10 cents per litre above third-quarter expectations.
As a result, Air Canada decreased its full-year adjusted EBITDA guidance to between $2.4 billion and $2.7 billion, down from its previous range of $2.9 billion to $3.2 billion. The carrier now expects to break even at around $150 million in free cash flow, instead of the previously projected $200 million to $500 million. Air Canada had earlier indicated it could offset 100% of incremental jet fuel expenses for the fourth quarter of 2026, but now estimates it can only offset approximately 70%, leaving margins thin as airlines struggle to recover the full cost increases through fares.