Air Canada:
Flag-carrier of the 51st State, Not Jan/Feb 2026

The federal government has now sold all its shares in the carrier, so Air Canada is again 100% privately owned, including by institutional investors such as the Canada Pension Plan Investment Board (CPPIB), Vanguard Group, BlackRock and RBC. While having a no-dividend policy, the company has embarked on a major share buy-back programme — spending C$1.3bn during 2024/25 on retiring shares, roughly 60% of its free cashflow during these two years. Unfortunately, the share price has not responded — as of mid-March the share was trading around C$19 compared to C$51 in January 2020 immediately before the pandemic hit.

2025 was a disappointment. Total passengers dropped to 45.3m from 45.9m in the previous year, while capacity was up by about 1%, resulting in an 84.6% system load factor.

Net profits slumped to C$644m (US$463m), a 2.9% margin on C$22.3bn (US$16.0bn) of revenue. The impact of a protracted flight attendants strike in the summer was a contributory factor. The airline estimated a net loss of C$375m due to lost revenue and compensation payments in the third quarter, but a significant portion of the lost revenue was recovered in an unexpectedly strong fourth quarter.

Labour conflict continues to bedevil the airline. The attendants have not yet agreed the August pay and conditions offer, and the dispute remains under arbitration. Further difficult pay negotiations are due this year, with the mechanics and airport staff.

Trump effect

The external blow to Air Canada came from President Trump whose tariff policy consisted of imposing punitive taxes one day and reducing them the next when it became apparent that they were self-harming and that the two economies were intertwined — for instance, the car manufacturing business based at Detroit and Windsor is deeply integrated with components passing the border up to eight times in the production of a car. Then there were the tirades about Canada being the 51^st state of the USA, a policy probably inspired by watching South Park [an utterly tasteless, but often funny and pointed American cartoon series depicting the citizens of a northern US town who blame Canada, and other liberals, when things go wrong].

The economic impact of President Donald Trump’s tariffs on the Canadian economy has been estimated by RBC and others at as cutting GDP growth by C$2-6bn or 0.1% to 0.3% in 2025 and 2026. This is significant in the context of Canada’s insipid economic performance — the IMF estimates 1.2% real GDP growth for 2025 and predicted 1.5% for 2026 before the Iranian war.

For Air Canada and WestJet, a booming transborder market was turned into a plummeting one — the latest available months indicating 30% annual falls — resulting from curtailed business travel and Canadians refusing to vacation in the USA. Winter destinations like Florida and Arizona have been particularly affected, with leisure travellers staying in Canada or diverting to the Caribbean, though a favoured destination, Cuba, is no longer possible because the US oil embargo means that there is no jet fuel available at Havana.

The table reveals the impact on Air Canada’s finances: US transborder revenue fell by 10.4% to C$3.9bn in 2025, the C$499m decline contrasting with a C$335m increase in all other regions.

Remarkably, at Air Canada’s 2025 results presentation, held at the end of February, there was no mention of the “T” word, either from the management or the equity analysts. The main comment on the transborder market (18% of revenues) was that management expected conditions to remain the same, with no significant improvement or decline anticipated. The airline’s short-term plans are, however, driven by the collapse of the transborder market. According to CEO Michael Rousseau: Air Canada has “reallocated capacity, moving to markets where demand was greater and de-risking our profile. Our established global footprint and fleet allowed us to adapt to travel trends and capitalise on them".

A mitigating factor for Air Canada is that its local rivals have cut transborder capacity more sharply (though this also means they have increased Atlantic capacity). Air Transat will cease all US flying in mid-2026, in effect closing what was once a network of nine routes. WestJet plans to suspend 16 routes, about 10 % of its transborder capacity.

Domestic concerns

Air Canada has always been enmeshed in domestic politics, with a perpetual discussion on the optimal level of competition in the country. Last year the Canadian Competition Bureau published a report in which it criticised the Air Canada/WestJet duopoly and recommended raising the foreign ownership limit for a single entity from 25% to 49% and allowing foreigners to completely own domestic carriers. President Trump has probably put paid to those proposals.

The pandemic put paid to a central element of Air Canada’s strategy: the take-over of the country’s number three airline, Air Transat, for a proposed C$720m. The takeover became incompatible with government support for both carriers. Air Transat has staged a recovery, reporting a net profit of C$242m on revenues of C$4.0bn in FY 2025 (to October 2025).

ULCC competition in Canada is provided by Flair Air, based at Edmonton, the capital of Alberta. Its current fleet comprises 20 737NGs and MAXes, carrying an estimated 5m passengers in 2025. No financials are available. The fleet was supposed to have grown to 50 units by 2026 but plans are uncertain, partly due to the airline’s doubtful association with international financiers. A founding investor in and lessor to Flair was 777 Partners, a Miami-based investment firm and leasing company, which also invested in Bonza, an Australian LCC which went bankrupt after two years of operation. There is currently a US court case brought by the SEC against 777 Partners alleging multiple frauds. Meanwhile, 777’s stake in Flair has been reduced from 25% to 10%.

Domestically, Air Canada retains a strong position, controlling over half of total capacity while WestJet has over 30%. It aims to grow domestic capacity by about 5% in 2026 focusing on its main hubs at Montréal and Toronto, while maintaining capacity in the western markets where WestJet dominates, though there will be a new Rouge base at Vancouver.

Rouge was originally conceived as a lower cost subsidiary operating A320 family aircraft. Now it resembles something rather different: a full-service 737 MAX operator, albeit still focused on leisure markets.

52 MAXes are to move from the mainline carrier to Rouge by the end of this year, where they will be reconfigured with 12 Business Class seats, 18 Economy-plus and 147 Economy seats. There will be reclining seats, seatback entertainment and free Wi-Fi, plus complimentary drinks and food on flights throughout North America. The Rouge A320s are to go in the opposite direction to mainline Air Canada where they will be reconfigured to mainline specs. Indeed, the entire mainline fleet and the regional subsidiary, Air Canada Express (Jazz), is going through a refurbishment programme.

It is difficult to see where Rouge will achieve significantly lower costs. The new configuration totals to 177 seats per MAX compared to 187 at WestJet. A relatively minor cost advantage come from the flight attendant pay scales which were about 33% lower at Rouge than at the mainline carrier, but that differential has been eroded by the recent pay negotiations. There is no difference in cockpit crew scales.

Air Canada also has a dedicated high-cost operation, its premium charter unit, Jetz, with four 70-seat A320s, aimed at the corporate market and sports teams. Jetz concentrates on flights within the Toronto-Ottawa-Montréal triangle, linking to New York. In also operates in the west between Vancouver, Calgary and Edmonton, plus charters to US cities.

Atlantic and Pacific prospects

Air Canada growth prospects depend on the Atlantic and Pacific markets (31% and 15% of total revenues respectively). In 2026 Toronto will become the second largest transatlantic hub in North America by seat capacity and Montréal the fifth-largest (and additional services are planned from Ottawa and Halifax in Nova Scotia). Vancouver claims to be the second largest transpacific hub. ​

According to an analysis by Cirium, Air Canada will schedule 326 MAX flights to Europe in the third quarter of 2026, a 31% increase on 2025 and a 34% increase in seat capacity because of the new Rouge configuration. Some of the new destinations — Budapest, Catania, Nantes, Edinburgh, Copenhagen, among others — are likely to test the viability of thin long-hauls operated at low frequency.

The airline is also preparing for the A321XLR (14 fold-flat premium seats and 168 Economy), 15 of which will be delivered through 2026-27. These will extend Air Canada’s range in eastern and southern Europe, and also are intended to appeal to business travellers.

One of new Prime Minister Mark Carney’s initiatives this year, partly responding to the US polices, was to visit China in an attempt to normalise relations; he has also visited India, Malaysia, South Korea and Japan. Vancouver is part of the Pacific Rim economy and has a large Asian-origin population, so Air Canada sees the Pacific as its major growth opportunity and the focus of its widebody operation.

Last year Air Canada resumed service to Beijing which had been suspended in 2020. This year new start-up routes include Singapore and Manila with increased frequency to Hong Kong and Bangkok. Responding to the Iran war, it has doubled capacity to India.

This is mostly a 787 market while 777-300s are allocated to Japan and South Korea. The airline recently announced that it was the purchaser of eight A350-1000s, previously marked as undisclosed. These aircraft are due for delivery in 2030 and will replace ageing 777s, and enable allowing non-stop flights of up to 9,000nm.

Air Canada has taken to emphasising its role as a sixth freedom carrier, connecting flows from Europe and Asia through to Mexico, the Caribbean and South America. It states that sixth freedom revenues have grown strongly but has not provided any detail on the absolute volumes. It must be said that Air Canada is not traditionally thought of as a sixth freedom carrier, and it will face intense competition from the mega-hubs of the leading US network carriers. Air Canada is less than a quarter the size of Delta in terms of traffic and revenues, and is close in size to Alaska Airlines.

Air Canada has shown resilience and has responded quickly to the transborder crisis but there is a lingering impression of a carrier that has not totally shed its state ownership legacy and is cautious in its growth plans — its 2030 “aspiration” is for revenues to reach C$30bn, compared to C$23bn now. For its size the airline is remarkably complex; it has four different brands (Air Canada, Air Canada Rouge, Jazz and Jetz) and it operates just about every type of widebody, narrowbody and regional jet (see table). And English/French tension is always in the background: Michael Rousseau’s tenure as CEO may be under threat not because of weaknesses in Air Canada’s strategy but because, despite his name and years spent in Montréal, he cannot communicate in French.