Air Canada Q2 Earnings Call Highlights

Key Points

• Air Canada delivered a strong second quarter: Adjusted EBITDA reached C$719 million, near the top of guidance, while record revenue rose 11% to C$6.3 billion. Premium, corporate and cargo demand were key contributors, with cargo revenue up 29% and corporate revenue up 19%.
• Fuel and labor costs remain significant pressures: Fuel expense increased 49%, while adjusted nonfuel CASM rose 7%; the airline now expects full-year CASM growth of 5% to 6%. Air Canada forecasts recovering more than 60% of incremental fuel costs in Q3 and over 100% in Q4.
• The Aeroplan transaction strengthens finances and shareholder returns: Air Canada will sell a 25% Aeroplan stake for C$2.5 billion, valuing the loyalty program at C$10 billion. Proceeds will help repay debt, fund a share buyback of up to C$800 million and reduce leverage, while 2026 adjusted EBITDA guidance was reinstated at C$2.9 billion to C$3.2 billion.

Air Canada TSE: AC reported second-quarter 2026 adjusted EBITDA of C$719 million, at the upper end of its guidance range, as record revenue and stronger unit revenue helped offset higher fuel costs. The airline said adjusted EBITDA margin was 11.5%.

Operating revenue rose 11% from a year earlier to a quarterly record of C$6.3 billion, while passenger revenue also increased 11% to C$5.6 billion. President and Chief Executive Officer Michael Rousseau said the results reflected a favorable pricing environment, resilient network demand, cost discipline and contributions from Cargo, Air Canada Vacations and Aeroplan.

“The quarter demonstrated the resilience of Air Canada’s diversified business model,” Rousseau said. He added that the carrier recovered about 50% of the incremental fuel expense during the second quarter through pricing, capacity management and fuel hedging.

Revenue strength led by premium, corporate and cargo demand

Chief Commercial Officer and President of Cargo Mark Galardo said system-wide capacity increased 0.3% during the quarter, slightly below the company’s prior guidance range because of weather-related disruptions and Air Canada’s approach to capacity allocation. Passenger revenue per available seat mile, or PRASM, increased 11%, while yield rose 7% year over year.

The airline reported an 87.5% system-wide load factor, which Galardo said was a leading result among major North American peers. Premium revenue increased 11% from a year earlier, while corporate revenue rose 19%.

Air Canada’s Sixth Freedom traffic, which refers to international passengers connecting through its network, produced 9% revenue growth, with more than half of the increase coming from the Pacific corridor. Cargo revenue climbed 29% year over year, supported by stronger yields, shifting trade flows and a narrower cost difference between air and ocean freight.

Galardo said demand remained constructive entering the second half of the year, including in premium segments. He said new international routes were performing well and that Air Canada had increased capacity in several of those markets.

The company expects premium travel and corporate demand to strengthen after the summer period. Galardo said September through December corporate revenue is expected to post double-digit growth, with contributions split broadly among domestic, transborder and transatlantic markets. While Canada-U.S. demand remains roughly flat year over year, premium corporate demand on those routes continues to grow, he said.

Fuel costs and cost pressures weigh on reported results

Chief Financial Officer John Di Bert said operating expenses were 24% higher than in the second quarter of 2025, including C$388 million of charges excluded from adjusted EBITDA. Those charges were related to pension-plan amendments, benefit-related items and a legal provision. Excluding those items, operating expenses increased 17%.

Fuel expense rose 49%, or C$565 million, net of C$205 million in hedging gains. Air Canada’s second-quarter guidance had assumed fuel costs of C$1.28 per liter, compared with a reported average of C$1.33 per liter, including hedge benefits.

The company expects its recovery of incremental fuel expense to improve to more than 60% in the third quarter and above 100% in the fourth quarter, based on the fuel forward curve. Di Bert said the higher fuel costs associated with fares booked before the rise in fuel prices represented an estimated C$500 million to C$600 million headwind to the company’s original 2026 plan.

Adjusted cost per available seat mile, excluding fuel, increased 7% year over year. More than one-third of the increase stemmed from recently completed labor agreements covering multiple employee groups, Di Bert said. The company expects unit-cost performance to improve in the second half as capacity expands, though it now forecasts full-year adjusted CASM growth of 5% to 6%.

Aeroplan investment values loyalty program at C$10 billion

Air Canada announced a C$2.5 billion sale of a 25% minority equity interest in Aeroplan, valuing the loyalty program at C$10 billion, or 21 times trailing EBITDA. The airline said Blackstone, La Caisse and other investors will acquire the minority stake.

Rousseau said Air Canada will retain full control over Aeroplan’s strategy, operations, partnerships and member experience. He said there would be no changes to how members earn or redeem points as a result of the transaction.

Di Bert said the investor group will be entitled to distributions under an agreed policy, while Air Canada will retain board control and operating discretion. The airline has the right to repurchase the minority shares between years five and eight at a price designed to provide investors a total internal rate of return of 6.5%.

Proceeds are expected to be used to repay a C$1.2 billion debt maturity due in August 2026 and to support a substantial issuer bid of up to C$800 million of Air Canada shares. Di Bert said the transaction is expected to reduce gross and net leverage by approximately half a turn and support the company’s path toward an investment-grade credit rating over the medium term.

Air Canada ended the quarter with C$8.9 billion of total liquidity and a net leverage ratio of 1.7 times. It generated C$651 million in operating cash flow and C$174 million in free cash flow during the quarter. The company has repurchased 14.5 million shares year to date and said its outstanding share count had fallen 22% to 280 million shares as of the end of the quarter.

Updated 2026 outlook and fleet plans

Air Canada reinstated and updated its full-year guidance, forecasting adjusted EBITDA of C$2.9 billion to C$3.2 billion and free cash flow of C$200 million to C$500 million. The guidance assumes third-quarter fuel prices of about C$1.38 per liter and fourth-quarter fuel prices of approximately C$1.29 per liter.

• Full-year capacity growth is expected to be 2.25% to 3.25%.
• Adjusted CASM is expected to increase 5% to 6% from 2025.
• Gross capital expenditures are expected to total C$3.6 billion in 2026, down C$300 million from prior guidance, primarily because of aircraft delivery timing and reconfiguration schedules.
• The company remains on track to complete about C$1 billion of sale-and-leaseback transactions in 2026.

The airline has received two Airbus A321XLR aircraft and five Airbus A220s so far this year. It expects two Boeing 787-10s by year-end, along with seven additional A321XLRs and 11 A220s. Air Canada also transferred 21 Boeing 737 aircraft to Air Canada Rouge as of June 30.

Rousseau, who said he will retire at the end of August after nearly 19 years with the airline, said the company has a strong leadership team and continuity in strategy. He said the board and executive group have planned governance arrangements for the period before the incoming chief executive joins toward the end of January.

About Air Canada (TSE:AC)

Air Canada is Canada's largest airline, the country's flag carrier and a founding member of Star Alliance, the world's most comprehensive air transportation network. Headquartered in Montréal, Air Canada provides scheduled service directly to more than 180 airports in Canada, the United States and Internationally on six continents. It holds a Four-Star ranking from Skytrax. Air Canada's Aeroplan program is Canada's premier travel loyalty program, with more than 10 million members worldwide. Members can earn or redeem points on the world's largest airline partner network of more than 50 airlines, plus through an extensive range of merchandise, hotel and car rental partners.

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