Fuel price shock clips WestJet's wings; Alberta businesses, farmers also feeling pinch as gasoline climbs

Jul 31, 2018


The company, whose stock was down 8.17 per cent yesterday, posted a loss of $20.8 million in the second quarter of 2018 — the first time in 52 consecutive quarters that WestJet has not made a profit.

In a conference call Tuesday, CEO Ed Sims said the threat of a pilots’ strike earlier this spring resulted in “tens of millions” of dollars of lost revenue, but also laid the blame on the surging cost of jet fuel, which was 30 per cent higher than it had been in the second quarter of 2017. Fuel represents WestJet’s single highest operating cost, accounting for $300 million in expenses in the second quarter.

“We expect this trend to continue, with third quarter fuel prices forecast to be up 35 to 38 per cent year-over-year,” Sims said, adding the airline is doing everything it can to counter the impact, including increasing fares and examining whether there are any “under-performing” routes that can be eliminated. The company is also considering slowing the delivery of new planes.

 “We have already implemented five fare increases since the start of the year to help mitigate rising fuel prices,” Sims said. “We continue to evaluate market elasticity for further price increases and for inventory adjustments off the back of our capacity adjustments.”

Air Canada had also indicated that it is considering a reduction in capacity in the fourth quarter because of higher fuel prices, which it said will likely push up ticket prices by an undisclosed amount. But it’s not only airlines that are reeling from the sky-high cost of fuel this summer — Alberta businesses large and small are affected by this summer’s prices at the pump, which on more than one occasion have come close to setting an all-time record.

“In Calgary, your gas prices have increased on average 40 cents a litre year-over-year,” said Dan McTeague, senior petroleum analyst with GasBuddy.com. “That’s just on the gasoline side — diesel has not gone up as much but remains very robust, very expensive. We’re seeing about a 30 cent per litre increase year-over-year there.”

McTeague said the increased prices are due to higher oil prices, a weak Canadian dollar, and increased taxes on fuel — including a 6.73 cent per litre carbon tax in Alberta. According to the GasBuddy.com website, which tracks gasoline prices across Canada, the average price at the pumps in Calgary on Tuesday was 133 cents per litre. The highest all-time gasoline price posted in Calgary was 136.8 cents per litre on Sept. 15, 2008.

McTeague said — short of any unforeseen economic turbulence in the months to come — gasoline prices are likely to remain elevated for some time, a big problem for businesses for which fuel makes up a significant part of their costs.

“If I’m an average truck driver, or an average business using 100 litres a week, then the longer this goes on I could be looking at an additional $2,000 to $3,000 more on energy costs per week,” he said.

Amber Ruddy, Alberta director for the Canadian Federation of Independent Business, said in a recent survey 65 per cent of CFIB members identified fuel and energy costs as a “major constraint” for their business.

“The only other cost that’s higher, our members say, is tax and regulations,” Ruddy said. “And some of that goes hand in hand — part of the reason fuel costs are going up is carbon taxes and other taxes governments have recently levied. So yes, it is a major concern.”

The rising cost of fuel is also a major headache for the province’s farmers. While agricultural producers do receive a six cent per litre discount on marked fuel, it isn’t enough to make up for the increased costs at the pump.

“Fuel is probably 10 to 15 per cent of some people’s costs,” said Lynn Jacobson, president of the Alberta Federation of Agriculture. “It goes up depending on the type of farming you’re doing. If you’re an organic farmer you’re using a lot more fuel than a conventional farmer, because you’re tilling the land more.”

Jacobson said the volatility in fuel prices — combined with the fact that prices often vary significantly from town to town — make long-term planning difficult.

“We’re like everybody else. All we can do is complain and absorb it,” he said. “But it is definitely something that raises our cost of production.

Source: https://edmontonjournal.com/business/local-business/fuel-price-shock-clips-westjets-wings-alberta-businesses-farmers-also-feeling-pinch-as-gasoline-climbs/wcm/454a526f-3e11-4134-afae-f48ba26dd563