Air Canada Cuts 2026 Earnings Outlook to C$2.4–2.7 Billion
Key Facts
Air Canada cut its 2026 adjusted earnings before interest, taxes, depreciation and amortization forecast to between C$2.4 billion and C$2.7 billion, from C$2.9 billion to C$3.2 billion in guidance issued on August 11. In its third-quarter results, the company said the adjustments to earnings and cash flow reflect expectations for higher fuel prices for the rest of the year compared with its previous assumptions. It also lowered its free cash flow guidance to breakeven, with a margin of plus or minus C$150 million, after previously forecasting between C$200 million and C$500 million. Higher fuel prices are a key assumption in the new outlook, while the company said prices remain volatile amid conflicts in the Middle East and shipping disruption through the Strait of Hormuz. The company added: "Fuel prices remain the key variable in the outlook."
In the third quarter, operating revenue was C$6.984 billion, up from C$5.774 billion in the same period of 2025, while adjusted earnings before interest, taxes, depreciation and amortization fell to C$936 million from C$961 million. The chief financial officer said revenue rose 21% year over year, supported by 11% growth in passenger yield and 33% growth in cargo revenue. But fuel expense rose C$906 million from a year earlier, and prices were ten cents per litre higher than the company's forecast for the quarter. The chief financial officer said the increase in fuel expense came "with fuel prices ten cents per litre higher than our forecast for the third quarter." The comparison highlights a divergence between revenue growth and a decline in adjusted earnings amid higher fuel costs.
The pressure was also reflected in net income attributable to the company's shareholders, which was C$139 million in the third quarter, compared with C$264 million a year earlier. By contrast, adjusted diluted earnings per share remained at C$0.75, matching the same period. Free cash flow posted a deficit of C$440 million, after a surplus of C$211 million in the third quarter of 2025. Free cash flow thus shifted from positive to negative year over year, alongside a cut in the annual outlook to breakeven, with a margin of C$150 million in either direction. These indicators show that fuel's impact extended to cash generated during the quarter, alongside the decline in net income.
The company raised its assumed average jet fuel price for the fourth quarter to about C$1.72 per litre, from C$1.29 in its previous estimate. The assumption is based on the forward price curve on October 8, adjusted to reflect the company's supply chain conditions, including fuel infrastructure at its Canadian hubs and price exposure at its international stations. The company said nearly half of its fuel requirements in the fourth quarter will be exposed to price volatility. It expects to offset about 70% of the estimated increase in fuel expense above its previous assumptions directly for February 12, 2026, compared with a full 100% offset in its previous guidance. The lower expected offset, together with the higher price assumption, means the fuel estimate for the coming quarter carries a larger impact on the earnings outlook.
Air Canada kept its 2026 capacity growth forecast at about 2.75% compared with 2025, but narrowed its range for the increase in adjusted cost per available seat mile to 5.5–6%, from a previous range of 5% to 6%. It also lowered its assumed average Canadian dollar exchange rate to C$1.39 per U.S. dollar in 2026, from C$1.41 previously. On liquidity, the company ended the third quarter with total liquidity of C$8.018 billion and net debt of C$4.219 billion. It said proceeds from the Aeroplan transaction were used to repay $1.7 billion of debt and complete an C$800 million share buyback. The figures come amid capital allocation decisions, as the company announced a new share repurchase authorization.
The Toronto Stock Exchange authorized Air Canada to purchase and cancel up to 25,197,886 shares, or about 10% of its publicly traded shares. The authorization runs from November 9, 2026, through November 8, 2027, but the company said it is not obligated to buy any shares under it. The announcement sets the program's ceiling and duration, without implying that the full authorized amount will be purchased. This follows the use of Aeroplan proceeds to repay debt and complete a previous C$800 million share buyback, according to the results statement. In its operating guidance, the company kept expected capacity growth stable, while fuel remains the key variable it cited in its outlook update.