Investing.com -- Air Canada on Thursday lowered its full-year 2026 earnings outlook, citing sharply higher jet fuel prices tied to conflict in the Middle East, even as the airline posted record third-quarter revenue on strong travel demand.
The carrier now expects 2026 adjusted core earnings (EBITDA) of C$2.4 billion to C$2.7 billion, down from its August forecast of C$2.9 billion to C$3.2 billion. It also now sees free cash flow at break-even, plus or minus C$150 million, versus a prior range of C$200 million to C$500 million.
Air Canada said it now assumes jet fuel will average about C$1.72 per litre in the fourth quarter, compared with its earlier assumption of C$1.29. It expects to offset about 70% of the incremental fuel expense through pricing and other measures in the quarter, down from 100% previously.
The company narrowed its 2026 capacity growth forecast to about 2.75% and now expects adjusted unit costs to rise 5.5% to 6%, from 5% to 6% before. It flagged risks including volatile fuel supply, disrupted shipping routes through the Strait of Hormuz, and uncertainty over tariffs on Canadian trade.
"While we expect the challenging environment to persist, our strong financial position provides us with the flexibility to respond to near-term developments," Chief Financial Officer John Di Bert said in a statement.
The revised guidance shows how fuel costs are overwhelming otherwise healthy demand at Canada's largest carrier. Fuel was the main reason profit fell despite a 21% jump in revenue, and the company warned that supply disruption in the Middle East could push prices higher still. Management is leaning on its balance sheet, including a new share buyback, to cushion the hit.
"While we expect the challenging environment to persist, our strong financial position provides us with the flexibility to respond to near-term developments," Chief Financial Officer John Di Bert said in a statement.
Record sales fail to offset fuel costs
Third-quarter operating revenue rose to a record C$6.984 billion, helped by an 11% rise in yield, a 2.6-percentage-point gain in load factor to 89.1% and 33% growth in cargo revenue.
Fuel expense climbed C$906 million from a year earlier to C$2.118 billion, with the cost per litre up 68%. Operating income slipped to C$261 million from C$284 million, and adjusted EBITDA fell to C$936 million from C$961 million.
Net income attributable to shareholders was C$139 million, or 49 Canadian cents per diluted share, down from C$264 million a year earlier. Adjusted earnings were 75 cents per share, flat year on year. Free cash flow was negative C$440 million, compared with positive C$211 million a year ago.
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