Air Canada aircraft sit parked at Vancouver International Airport. Air Canada and Transat A.T., the only large domestic airlines that are publicly traded, currently use financial derivatives or hedges to contain a portion of their fuel expenses.DARRYL DYCK/The Canadian Press
As the war in the Middle East drives up oil prices, airfares are rising as carriers grapple with soaring fuel bills.
The 40-per-cent rise in oil prices since the U.S. and Israel began bombing Iran on Feb. 28 has sent jet fuel prices soaring, and could cost Canadian airlines hundreds of millions of dollars in added costs. Iran has responded to the attacks by bombing neighbouring countries and their oil facilities and blocking the Strait of Hormuz, a waterway that carries one-quarter of the world’s seaborne crude.
“It’s been just a super-duper shock,” said Chris Murray, an analyst at ATB Financial, of the sudden spike in fuel costs.
Airlines have a limited number of tools they can use to cushion the impact of spikes in fuel prices, including hedging strategies, inventory management, and higher fares and surcharges. Air Canada and Transat A.T., the only large domestic airlines that are publicly traded, currently use financial derivatives or hedges to contain a portion of their fuel expenses. Porter Airlines does not, and WestJet and Flair Airlines declined to say.
So, placing a price tag on the rise in jet fuel prices is tough.
“Without knowing the exact percentages of fuel hedged and at what price and for what time periods, it is difficult to get to a precise cost impact,” said Cameron Doerksen, an analyst at National Bank Financial.
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Air Canada spent $4.7-billion on fuel in fiscal 2025 while Transat spent $593-million. “Hedges will mitigate some of the impact of higher fuel, but if prices stay high, it is a significant cost increase for both,” Mr. Doerksen said.
Hedging strategies – essentially insurance policies against price swings – can be costly to operate, and even more costly when they are wrong. Still, they provide some cost certainty for airlines, whose largest expense is fuel.
“The way to think about the hedge is it’s a bit of a shock absorber,” ATB Financial’s Mr. Murray said. “And so between your [fuel] inventory and your hedge, you’ve got some time to deal with the financial impact.”
Air Canada said as of Dec. 31, 2025, it hedged 17 per cent of its fuel expenses for the first half this year, at an average of 70 cents a litre. Company policy permits it to hedge up to 75 per cent of a current year’s projected fuel purchase, and 50 per cent for the next year.
Jet fuel traded this week at about $1.37 a litre, up by 52 per cent from last year’s average – and Air Canada’s 2026 forecast – of 90 cents a litre, Mr. Doerksen said.
Like other airlines, Air Canada has raised fares in response.
“Global jet‑fuel prices have surged, creating increased cost pressure, and the situation is still highly volatile and unpredictable,” said Peter Fitzpatrick, an Air Canada spokesman. “Fares vary by market and are influenced by a range of factors, including supply and demand, operating costs such as fuel, seasonality and various market dynamics. Specifically, pricing has been and continues to be adjusted to reflect these higher fuel costs.”
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Without providing details, Transat executives on a recent quarterly conference said more than half the leisure airline’s fuel consumption is hedged through the end of March, an amount that drops to less than half in the summer. Annick Guérard, Transat’s chief executive officer, summed up the problems all airlines face: They can’t raise prices on tickets already sold, and they can’t hike fares and surcharges beyond what the market will bear.
She said the airline has raised prices for flights to Europe and for “peak travel dates” on which there is less competition, and is slashing costs throughout the company. Transat has also looked at cutting flights to save fuel, but is not there yet, she said.
“We’re really doing anything we have to do, including restricting our expenses across the company to make sure that we’re going to be able to deal with that fuel spike,” she said.
Flair said in a statement that the airline tries to mitigate fuel price volatility by actively managing fuel purchases.
“Fuel prices move with global markets, and airlines across the industry adjust to those changes as part of normal operations,” the statement said.