Air Canada TSE: AC reported a stronger first quarter for 2026, highlighting record first-quarter adjusted EBITDA and improved commercial performance, while also cautioning investors about heightened jet fuel volatility that led the airline to suspend its full-year outlook.
Management opens call with safety update
President and CEO Michael Rousseau opened the call by acknowledging a “recent incident at LaGuardia Airport,” offering condolences to those affected and reiterating that “safety remains the foundation of our industry and our first priority.” Rousseau said Air Canada remains engaged with U.S. and Canadian authorities as the investigation continues and thanked employees involved in the emergency response.
First-quarter performance and commercial drivers
Rousseau said Air Canada delivered “year-over-year growth of 61% in adjusted EBITDA” in the first quarter, which he attributed to disciplined execution in a volatile environment. He also pointed to progress under the company’s “New Frontiers objectives,” supported by a diversified network, premium positioning, and flexibility to align capacity with demand.
Chief Commercial Officer and President, Cargo Mark Galardo said first-quarter operating revenues and passenger revenues rose 11% year-over-year to CAD 5.8 billion and CAD 4.8 billion, respectively. Galardo said the revenue performance was “largely driven by an 8% increase in PRASM on 2% more capacity.”
By geography and segment, Galardo emphasized sustained long-haul demand and a growing contribution from higher-yield customers:
- International revenues increased 17% year-over-year, with the Atlantic showing “solid mid-teen unit revenue growth” in the quarter.
- Premium revenues grew 11% year-over-year; Galardo said business class revenue growth outpaced the economy cabin “by 2 percentage points.”
- Corporate revenues rose 14%, which Rousseau said was supported in part by tailwinds from Canada’s “diversifying trade objective.”
- Sixth Freedom revenues increased 18% year-over-year; Galardo said Air Canada’s Latin America expansion drove “more than half” of that growth.
Galardo also said Air Canada produced a record first-quarter load factor and that load factors were “roughly 5 percentage points above some of our North American peers,” which he characterized as evidence of disciplined capacity management.
In cargo, Galardo said revenue increased 4% year-over-year, while Air Canada Vacations delivered record first-quarter revenues despite disruptions in Cuba and Mexico. He said increased sun capacity helped drive a 19% increase in other revenues.
Costs, fuel volatility, and cash flow
EVP and CFO John Di Bert said adjusted EBITDA increased 61% year-over-year to a first-quarter record of CAD 623 million, representing a margin of 10.8%. Air Canada posted an adjusted loss per share of CAD 0.05, improving from a loss of CAD 0.45 in the prior-year quarter. Di Bert said results “exceeded market expectations” and reflected strong commercial execution, network optimization, operational resiliency, and continued cost management progress.
On costs, Di Bert said adjusted CASM increased 5.5% year-over-year, driven primarily by higher labor costs from previously negotiated agreements. He also cited operational inefficiencies tied to capacity constraints and disruptions, including cancellations to the Middle East, Northeast weather, and localized challenges in sun markets. He added that total non-fuel costs were broadly in line with internal expectations.
Fuel was a central theme. Di Bert said volatility increased as the quarter progressed, with prices rising sharply in March and offsetting earlier benefits, leaving fuel expense “broadly flat year-over-year” in Q1. Lower-priced inventory and hedging gains helped moderate the impact. In Q&A, Di Bert quantified the quarter’s fuel headwind, saying there was about a CAD 90 million gross headwind, with about half absorbed by hedging, leaving roughly a CAD 55 million net headwind.
Cash flow and capital allocation were also highlighted. Di Bert said Air Canada generated a record CAD 1.8 billion of cash from operations, supported by strong performance and seasonal working capital ahead of peak travel season, including advanced ticket sales and higher fares. The quarter also included CAD 283 million in proceeds from the first in a series of sale-leaseback transactions intended to restore fleet ownership to historical levels of 65% to 70% over the next two years.
Di Bert said the company repurchased close to 8 million shares, deploying CAD 142 million under its NCIB, bringing cumulative buybacks to CAD 1.5 billion since the launch of a CAD 2 billion target buyback program announced at its December 2024 Investor Day. Air Canada ended Q1 with about 287 million shares outstanding, representing a 20% reduction from September 30, 2024. Net leverage at quarter-end was 1.4x EBITDA.
Looking ahead, Di Bert said Air Canada plans to repay an August debt maturity using on-balance-sheet liquidity while staying above its liquidity target of 15% of revenues. As it completes the debt paydown, the company will “pause the share repurchases in the near term,” but said it will revisit that decision in the second half of the year.
Guidance suspended; Q2 outlook framed around fuel recapture
Rousseau said the situation in the Middle East and a sharp increase in global jet fuel prices since late February created a “significant external shock,” prompting the company to suspend full-year guidance and issue second-quarter guidance instead. Di Bert said full-year guidance was suspended due to “continued uncertainty and variability of outcomes for future jet fuel prices.”
For Q2, Air Canada guided to adjusted EBITDA of CAD 575 million to CAD 725 million and capacity growth of 0.5% to 1% year-over-year. Di Bert said Q2 assumptions reflect the forward fuel curve as of April 28, using $4.15 per gallon (U.S. dollars) and a planning rate of CAD 1.28 per liter including transportation, taxes, and hedging gains.
Both Rousseau and Galardo said the airline expects to offset about 50% to 60% of incremental fuel expense in Q2 through disciplined commercial and cost actions. Galardo said Air Canada was among the first airlines to implement fare increases and has since executed “multiple rounds of passenger fare and ancillary increases,” adding that the airline is ticketing forward yields at “mid-teens above last year.” Cargo also increased spot rates and introduced a carrier surcharge.
In Q&A, Galardo said demand remained resilient and that for the third quarter the airline was “not seeing any demand degradation right now,” despite multiple fare increases. He said Q3 booked load factor was about “2 points ahead” of the same time last year. He also noted that going into Q2, roughly 50% of bookings were made before the crisis, while for Q3 it was about a quarter.
Capacity, fleet updates, and other developments
On capacity planning, Galardo said the airline is managing in short windows, “2, 3 months at a time,” and is trimming lower-profit flying in July and August, including hub-bypass routes and marginal frequencies. He said it was still early to make a definitive statement on Q4 capacity.
Di Bert addressed unit cost dynamics, saying CASM pressure is higher in the first half than in the second half of the year, and that Q2 will see additional pressure from higher sales and distribution costs tied to higher fares, plus the impacts of load factors and capacity adjustments.
Management also discussed fleet and product initiatives. Rousseau said Air Canada recently took delivery of its first Airbus A321XLR, with an inaugural flight scheduled for June 15, and that additional aircraft deliveries are expected this year, along with two 787-10s. Galardo said the A321XLR will be deployed on transatlantic and key North American markets from Toronto and Montreal and described it as making Air Canada “the only Canadian airline to offer lie-flat seats on a narrow body.” Rousseau also said the company completed seven Boeing 737 MAX conversions to Air Canada Rouge and remains on track for 45 by year-end.
In response to questions about fuel security, Di Bert said the airline feels “very good” about supply at Canadian hubs and that discussions with suppliers suggest European supply “over the next 8 weeks” remains solid, while noting the company will continue to monitor conditions. He also said Air Canada can adjust gauge and deploy more fuel-efficient aircraft if rationing were to occur.
Rousseau addressed regulatory and policy topics raised by analysts, including airport privatization and passenger processing rules. He said Air Canada’s focus is lowering costs for consumers and that it would be supportive of models that reduce consumer costs. On the APPR, Rousseau said Air Canada is running a test of a European-style ADR process with a select number of customers to speed resolution times, and the airline will review results before further discussions with the Canadian government.
Rousseau also reiterated that he announced his upcoming retirement last month and said he plans to support the company during the transition.
About Air Canada TSE: AC
Air Canada is Canada's largest airline, generally serving nearly 50 million passengers each year together with its regional partners. Air Canada is a sixth freedom airline, similar to Gulf carriers, which flies many U.S. nationals on long-haul trips with a layover in Canada. In 2019, the company generated CAD 19 billion in total revenue.
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