Air Canada shares plunge as decline in travel to U.S. hits bottom line

Calgary Herald

3 days ago

The trans-border market's weaker performance partly reflected the impact of increased foreign exchange volatility leading to a softer Canadian dollar versus the U.S. dollar.
It was also affected by geopolitical and macroeconomic concerns as a result of actions, statements and uncertainty surrounding U.S. tariffs and related countermeasures, both of which negatively affected travel demand, it said.
In response, Air Canada reduced its capacity in the trans-border market in the second quarter and first six months of 2025, it said.
'We are closely monitoring the state of the Canada-U.S. sector, where we see a decrease in overall market capacity,' said Galardo.
He said passenger revenues from trans-border travel declined 11 per cent to $961 million in the second quarter and are down eight per cent at $1.95 billion for the year so far compared to 2024.
Domestic travel, on the other hand, is experiencing capacity growth as assets are redeployed from the U.S. routes, said Galardo.
'We kept a strong and steady presence and offered more options for travellers to explore the country, increasing capacity on key leisure destinations,' he said.
Domestic passenger revenues grew three per cent year over year to $1.38 billion in the second quarter. The airline attributed the growth to the year-over-year increase in operated capacity and traffic, partially offset by lower yields.
Galardo said they continue to witness strong demand for their international network through the end of the year and into early Q1 of 2026.
'Booking trends continue to evolve,' he said as fall and early winter periods see greater relative strength as opposed to historical norms.
BMO Capital Markets transportation analyst Fadi Chamoun said revenue per available seat mile (RASM) was better than expected and booking trends appear positive judging by advanced ticket sales that are two per cent above forecast.
Royal Bank of Canada analyst James McGarragle said the broader narrative of demand recovery and operational realignment remains intact despite the modest cost-related headwinds in the quarter.
Air Canada maintained the 2025 full year guidance it provided in May.
National Bank analyst Cameron Doerksen said he remains positive on Air Canada shares over the longer term, but does note some near-term risks that warrant caution, notably negotiations with the flight attendants and related strike risk potentially later in August.
'Although the macroeconomic backdrop remains uncertain and a risk for the stock, demand for air travel remains stable,' Doerksen said in a note.
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