Air Canada Earnings: Recovering Some Fuel Cost in Ticket Yields

Key Morningstar Metrics for Air Canada

• Fair Value Estimate
  : C$21.70
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : High

What We Thought of Air Canada’s Earnings

Revenue increased 11.3% to C$6.3 billion on nearly equal capacity to a year ago, while labor charges contributed to a C$215 million operating loss. Air Canada’s AC fuel costs jumped 50% to C$1.7 billion compared with last year, and it recovered approximately half that amount in passenger fares.

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, Air Canada endeavors to incorporate higher fuel costs into its ticket prices. We forecast jet fuel prices to slowly decline for the rest of 2026, averaging C$1.25 per liter or about USD 3.50 per gallon.
• Travel demand so far in 2026 closely resembles the overall volume of early 2025, with about 0.4% more travelers passing through security by mid-July. A volatile fuel price feeds uncertainty about consumer demand for travel, and Air Canada has pared back its original capacity growth forecast 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 increase our fair value estimate of no-moat Air Canada to C$21.70 per share from C$18.40 to reflect the airline’s recovery of higher fuel costs in its ticket pricing and the time value of money. This equates to an enterprise value to 2026 estimated EBITDA multiple of 4.9 and 14 times our 2026 estimate of adjusted earnings.