12 August 2026
Executive Summary
Air Canada has restored its annual profit forecast after suspending guidance earlier this year, but the revised figures demonstrate the substantial financial effect of fuel-price volatility.
The airline now expects jet fuel to average approximately C$1.38 per litre in the third quarter and C$1.29 in the fourth quarter, compared with its earlier assumption of around C$0.90 for the full year.
Second-quarter fuel expense rose 49% year on year. Air Canada has consequently reduced its expected annual adjusted core profit range from its earlier forecast.
However, the company expects hedging and other measures to offset approximately 60% of estimated incremental third-quarter fuel expense and 100% in the fourth quarter relative to assumptions immediately before the Middle East crisis.
UK Impact
The lesson applies well beyond airlines.
UK businesses exposed to volatile energy costs include:
- Hauliers.
- Shipping companies.
- Airlines.
- Construction groups.
- Manufacturers.
- Agricultural businesses.
- Distribution companies.
- Logistics providers.
Energy inflation can rapidly destroy margins where customers are contracted at fixed prices but fuel must be purchased at the prevailing market rate.
Businesses should therefore understand whether fuel risk is:
- Hedged.
- Passed through.
- Absorbed.
- Shared with the customer.
Leaving the answer unclear effectively means the business is speculating on future energy prices.
Global Impact
Fuel is typically one of the largest operating costs for airlines.
Air Canada says jet fuel accounts for roughly a quarter of airline operating costs, making rapid price movements financially significant.
The wider lesson is that hedging is not designed necessarily to obtain the cheapest possible price.
Its purpose is often to create predictability.
A business that knows its energy cost can price contracts, budget cash and protect margins more confidently than one relying entirely upon spot markets.
However, hedging itself introduces risks:
- Counterparty exposure.
- Incorrect hedge volumes.
- Margin requirements.
- Basis risk.
- Opportunity cost if prices fall.
Our View
Every business materially exposed to fuel or energy should know its unhedged percentage.
Companies should:
- Quantify annual energy exposure.
- Identify how much cost can be passed to customers.
- Review fuel-surcharge mechanisms.
- Assess hedging options with appropriate professional advisers.
- Avoid hedging volumes substantially above actual consumption.
- Model the effect of both rising and falling prices.
- Review customer contracts before committing to long fixed prices.
- Monitor counterparty exposure on derivative arrangements.
- Establish triggers for reviewing energy strategy.
- Include extreme fuel-price scenarios within annual budgets.
The lesson from Air Canada is not that every company should hedge.
It is that every company should know what happens to its margin if energy suddenly costs 40% more than budgeted.
If management cannot answer that quickly, the exposure has not been properly measured.
Risk Indicator: ELEVATED
Disclaimer
The information contained within these Market Alerts is provided for general market awareness and informational purposes only. It does not constitute financial, legal, investment, regulatory or insurance advice. Whilst every effort has been made to ensure accuracy at the time of publication using multiple reputable and independently verified sources, geopolitical events, legislation, regulation and market conditions may change rapidly. Readers should obtain appropriate professional advice before acting upon any information contained herein.
Invictus Risk Solutions LLP – Helping organisations stay ahead of emerging risks through informed insight and independent analysis.