Air Canada Earnings: Managing Risk During Macro Uncertainty

Key Morningstar Metrics for Air Canada

• Fair Value Estimate
  : C$21.97
• Morningstar Rating
  : ★★★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Air Canada’s Earnings

Air Canada AC‘s first-quarter revenue increased 11.3% to C$5.8 billion on 2.4% more capacity versus a year ago, while C$117 million operating profit offered 2% margin. The airline saw C$90 million of extra fuel costs and said it would trim capacity in 2026 as necessary to preserve margin.

Why it matters: March brought a dramatic fuel price spike that rattled the airline industry and may test demand and ticket pricing for the remainder of the year.

• As with other airlines, the spike in jet fuel prices to well over C$1 per liter made tickets that Air Canada had already sold before Feb. 28 less profitable. The carrier will endeavor to incorporate the higher fuel cost into its ticket prices. We forecast jet fuel prices to slowly decline for the rest of 2026, averaging C$1.29.
• Travel demand so far in 2026 closely resembles the overall volume of early 2025, with about 2% more travelers passing through security by the end of March. Air Canada announced it would pare its prior capacity growth to preserve what pricing power it may have, which we think is prudent and commensurate with our lower North American air mileage forecast for 2026.

The bottom line: We have updated our forecasts to reflect the near-term squeeze on profitability due to elevated fuel costs, as well as slightly raising our forecast of Air Canada’s average financing costs. This resulted in a decrease in our fair value estimate for the no-moat airline’s shares to C$18.40 from C$22.70.