Air Canada faces Q4 jet-fuel margin squeeze, National Bank warns
Bernstein analysts Alex Irving and Antoine Madre wrote Wednesday that Lufthansa’s prize — an up to 49.9% stake in Portugal’s flag carrier TAP for some 1.2 billion euros — has much to recommend it but comes at a steep financial cost. Lufthansa won out over rival Air France-KLM to take the stake, Lisbon said Wednesday. Irving and Madre described TAP as having a “defendable geographic niche” with a key Brazil connection, but said the price looked high at a premium earnings multiple. “Scale is one thing, improving margins is a greater challenge,” the analysts wrote.
National Bank of Canada analyst Cameron Doerksen said Air Canada is set to face margin pressure from higher-than-expected jet fuel costs. In a report, Doerksen noted that jet fuel averaged C$1.55 a liter in the third quarter, up from C$1.46 in the second quarter. Air Canada’s internal guidance had assumed fuel would average C$1.38 a liter in the third quarter and C$1.29 in the fourth quarter, he said. “The bigger headwind concern is for 4Q as the current spot price of jet fuel is C$1.89/liter,” Doerksen said. Although Air Canada expects to recover about 60% of higher fuel costs through higher passenger yields in the third quarter and roughly 100% in the fourth quarter, Doerksen said he expected the carrier to fall short of fully offsetting the higher fuel costs during the period.
Separately, Morgan Stanley raised its Dated Brent crude price forecast — which reflects oil priced for actual physical delivery — by $5 a barrel, citing record-high tanker freight costs that have propped up prices despite a recovery in Gulf oil exports. The bank now projects Dated Brent at $105 in the fourth quarter of this year and at $100 in the first quarter of 2027. Total supply from affected Gulf countries and Russia remains 5.5 million barrels a day below last year’s levels even though Gulf exports have rebounded, according to Morgan Stanley. The bank said inventories are low and cited heightened geopolitical risks as additional support for prices. Tanker rates have surged as longer shipping routes, ship-to-ship transfers and sanctions restrict available shipping capacity.