Air Canada cuts annual profit forecast as fuel costs outpace fare hikes

Oct 29 (Reuters) - Air Canada AC.TO cut its 2026 core profit forecast on Thursday as a sharp rise in jet fuel costs squeezes margins, outrunning the airline's ability to offset the impact through fare hikes.

Since the start of the Iran war, airlines have raised fares sharply to cushion margins, but the increases have not kept pace with soaring jet fuel costs. The volatile environment has also made it harder for carriers to forecast future fuel expenses.

With the war showing no signs of abating, analysts remain uncertain how much of the fuel-price increase airlines can pass on to flyers through higher fares before hurting travel demand, which has so far remained resilient.

Major US rivals including Delta Air Lines DAL.N and American Airlines AAL.O cut their full-year earnings forecasts earlier this month, warning that the industry may need deeper capacity reductions to defend pricing power and contain costs.

Air Canada said on Thursday that it expects jet fuel price to hover around C$1.72 per liter in the fourth quarter, compared with its prior estimate of C$1.29 per liter.

The Canadian carrier's operating revenue rose about 21% to about C$7 billion in the third quarter ended September 30.

The Canadian flag carrier now expects its adjusted EBITDA in the range of C$2.4 billion ($1.72 billion) to C$2.7 billion compared with previous expectations of C$2.9 billion to C$3.2 billion.

($1 = 1.3989 Canadian dollars)