Air Canada cuts 2026 profit forecast on higher fuel costs

Air Canada cut its 2026 adjusted EBITDA forecast to C$2.4bn to C$2.7bn from C$2.9bn to C$3.2bn on 29 October, as higher fuel costs squeezed margins. The midpoint fell by C$500m, or about 16%. Free cash flow guidance moved to around breakeven, plus or minus C$150m, from C$200m to C$500m.

Capacity trim

Executives said on the post-earnings call that they had reduced planned first-quarter 2027 capacity to protect margins, Reuters reported. The reduction is measured against an earlier plan and does not establish that flying will fall below first-quarter 2026 levels. Full-year 2026 capacity guidance remains growth of about 2.75%, a different period from the first-quarter adjustment.

Air Canada's October schedule announcement lists Toronto to Louisville from 28 April, Montreal to Indianapolis from 1 June and Edmonton to Newark four times weekly from 1 June. All three start after the January to March period covered by the capacity disclosure.

Fuel costs drive the cut

Air Canada raised its fourth-quarter jet fuel assumption to C$1.72 per litre from C$1.29, an increase of one-third. It expects to offset about 70% of its estimated incremental fourth-quarter jet fuel expense above assumptions it held immediately before 12 February, down from full offset, the company said.

In the third quarter, fuel expense rose by $906m year on year, with prices 10 cents per litre above the airline's expectations. "Decisive pricing, capacity and cost actions helped mitigate the impact of a $906 million year-over-year increase in fuel expense," chief financial officer John Di Bert said in a statement. Fuel prices remain the main variable in the outlook, the company said.

BMO expects Air Canada to recapture about 70% of incremental fuel costs, down from its previous assumption of full recovery. The broker said a longer booking curve and greater exposure to international long-haul routes are factors slowing the pass-through of higher fuel expenses.

Record revenue, lower profit

Revenue was a record C$6.984bn, up 21% year on year. Net income attributable to shareholders fell to C$139m from C$264m, and operating income slipped to C$261m from C$284m.

Adjusted EBITDA came in at C$936m, down from C$961m a year earlier but 6.8% above BMO's consensus benchmark. Air Canada carried about 13.3 million passengers in the quarter, up 9.6%, and its load factor rose 2.6 percentage points to 89.1%. Passenger yield rose 11%, and cargo revenue grew 32.6%.

Brokers cut targets, keep ratings

BMO cut its price target to C$33 from C$35 and kept an Outperform rating. Scotiabank lowered its target to C$31 from C$33 and kept Sector Outperform.

Scotiabank cut its 2026 adjusted EBITDA estimate to C$2.594bn from C$2.874bn. It cut 2027 to C$3.012bn from C$3.393bn and 2028 to C$3.999bn from C$4.179bn. It put Aeroplan's fair enterprise value at C$10bn, about C$13 per share on a net basis. The market valued Air Canada at roughly 2.5 times estimated 2027 enterprise value to EBITDA, the broker said, and much of the fuel-related pessimism may already be priced in.

BMO said higher fuel costs and a weaker fourth-quarter outlook outweighed the quarterly earnings beat.

What happens next

The disclosures did not identify which routes the first-quarter 2027 reduction affects. Guidance now hinges on the fourth-quarter fuel assumption of C$1.72 per litre and on how much of the increase Air Canada can pass through. The fourth-quarter fuel assumption and the pace of pass-through are the main variables in the outlook.