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Air Canada’s (AC-T) share price hit a one-year low on Wednesday as the airline navigates higher fuel costs, competition and interest rates.

The company’s stock slipped 3.49 per cent to close at $17.13, marking its lowest price since Oct. 12, 2022, and a one-third drop from its recent peak in July — part of a pattern seen across the North American airline sector.

Shares of major U.S. airlines also fell on Wednesday, after a disappointing fourth-quarter forecast from United Airlines (UAL-Q) a day earlier spooked investors and raised concerns rising costs are denting profits for carriers.

United’s shares were down as much as 8 per cent, hitting their lowest in a year, dragging peers Delta Air Lines (DAL-N), American Airlines (AAL-Q) and Southwest Airlines (LUV-N) down about 4 per cent each.

On Tuesday, United forecast adjusted profit for the current quarter in the range of $1.50-$1.80 per share, well below analysts’ average expectations of $2.06, according to LSEG data, taking a hit from costs associated with higher jet fuel prices and expensive labour contracts.

Profits at U.S. carriers have come under pressure as jet fuel prices jumped during the July-September quarter on tighter crude oil supplies.

Last week, Delta narrowed its profit outlook for the full year to $6-$6.25 per share, from $6-$7 per share in July.

Meanwhile, a reduction in capacity due to the suspension of flights to Israel is also expected to add to United’s non-fuel costs, which are projected to be up as much as 5 per cent in the quarter through December from a year earlier.

“Surging energy prices followed by the Israel-Hamas conflict were the primary culprits, two events that were not factored in anyone’s earnings models three months ago,” Deutsche Bank analysts wrote in a note.

Rising costs as well as signs of softening domestic travel demand have raised worries about the industry’s profitability, sparking a sell-off in airline stocks and prompting analysts to slash their earnings estimates.

Despite a rally in airline stocks this year, shares of United and Delta still trade about four and five times forward profit estimates, respectively, which is well below the S&P 500′s 19.7 multiple.

“We are facing sizable headwinds with labour and expectation of a new flight attendant agreement and continued higher maintenance expense,” United Airlines chief financial officer Michael Leskinen said during an earnings call on Wednesday.

On Monday, Raymond James analyst Savanthi Syth lowered her earnings forecast for Montreal-based Air Canada due to the run-up in jet fuel prices over the past three months.

She noted steeper competition with Porter Airlines, Flair Airlines and Lynx Air on domestic, cross-border and sun destination routes, but pointed to Air Canada’s loyalty program and fuel-efficient planes as an advantage.

In an interview, ATB Capital Markets analyst Chris Murray said worries also persist over consumers’ willingness to keep spending on travel amid higher interest rates and inflation.

Nonetheless, he says Air Canada looks well-placed in the medium term after the airline roared back to profitability in the spring and early summer, when revenues hit a second-quarter record that topped $5.4 billion.

With files from The Canadian Press

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 21/05/24 4:00pm EDT.

SymbolName% changeLast
AC-T
Air Canada
-1.44%18.48
UAL-Q
United Airlines Holdings Inc
-2.91%53.03
DAL-N
Delta Air Lines Inc
-1.43%52.23
LUV-N
Southwest Airlines Company
-0.82%27.97
AAL-Q
American Airlines Gp
-3.37%14.03

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