Air Canada Reports Some Bad News

Air Canada has reported a net loss of C$178 million in the second quarter of 2026 amid increasing volatility and pressure on the flag carrier.

While the net loss arrived, the airline reported quarterly operating revenue up 11% year on year to a record-breaking C$6.266 billion. Record revenue has become an industry-wide theme; the challenge, however, is controlling outgoings.

The broader industry has seen strong demand, as with Air Canada, with premium and corporate travel recovering, load factors remaining strong, and forward bookings solid. But with fuel volatility, additional labour charges, and further disruptions, earnings quickly turned negative.

Record revenue can’t outpace higher costs

Air Canada’s profitability fell again, with momentum swinging towards record revenue in the second quarter even as capacity was near flat, thanks to available seat miles increasing just 0.3% as changes were made to scheduling to limit fuel cost pressure.

Load factor rose 2.6 percentage points to 87.5%; despite flat capacity growth and several schedule changes, the airline maintained strong demand across the network.

However, while the airline saw its overall passenger miles climb and premium revenue jump by 16%, expenses increased faster than revenue. Operating expenses totaled C$6.481 billion, resulting in an operating loss of C$215 million.

Those figures show a sharp reversal from the operating income of C$418 million in Q2 2025; the shift of over C$600 million reflects the volatility affecting the airline industry in 2026 and the mounting pressures Air Canada must navigate.

Air Canada flagged burdens such as labour-related pressures and other charges as accounting for nearly C$400 million. These items were flagged by Air Canada and distorted the result; the adjusted EBITDA of C$719 million sits close to previous guidance for the year.

Fuel costs hurt Air Canada in 2026

While Air Canada has dealt with weather, labour and other related cost pressures, the biggest challenge for 2026 has been fuel. In April, Air Canada was forced to suspend its full-year guidance as the conflict in Iran drove up jet fuel prices and made planning nearly impossible.

During the guidance suspension, the airline stated that only 50-60% of its additional fuel costs would be recovered through fare actions and other commercial initiatives. In Q2, Air Canada said it recovered half of its fuel costs due to stronger pricing and demand.

However, with only half of that recovered, the fuel cost pressure has been significant, and its exposure through a long-haul network spanning Europe, Asia, Latin America, and beyond has left it vulnerable and unable to see revenues outpace the costs.

The airline is now confident it can reinstate guidance with greater clarity; however, that’s at a lower level than before the Iran conflict. Capacity growth has been moderate, with forecasts of a 2.25% to 3.25% increase in available seat miles, down from the previous 3.5% to 5.5% guidance.

Furthermore, the airline sees adjusted EBITDA of C$2.9 billion to C$3.2 billion for 2026, down from the previous C$3.35 billion to C$3.75 billion. The airline also expects higher unit costs and substantially lower free cash flow.

Air Canada’s caution comes after a troubled 2026, but the flag carrier hopes it will pay off, as the concerns don’t stem from a demand collapse but rather from ongoing and unexpected volatility. Resilient bookings and stronger fuel-cost recovery could improve the outlook over time, but the longer the conflict and volatility continue, the greater the risk of sustained losses.