Air Canada (AC.TO) shares fell three per cent on Friday, despite the airline reporting stronger-than-expected quarterly earnings and reaffirming its 2025 guidance. The decline came as the company signaled it could redeploy capacity from U.S. destinations if demand weakens due to potential tariff conflicts.
The Montreal-based airline’s stock experienced volatility throughout the day, initially surging seven per cent in early trading before dropping four per cent following the earnings release. Shares closed at $17.75 on the Toronto Stock Exchange, down three per cent from Thursday’s close.
While Air Canada reported encouraging booking trends for 2025, executives emphasized their readiness to adjust capacity in response to geopolitical uncertainties. Mark Galardo, Air Canada’s executive vice-president of revenue and network planning, told analysts on a conference call that it is “still premature to discuss the potential impact, if any, of actual or potential regulatory tariffs or possible retaliations.” However, he noted that the airline has “ample flexibility to respond by moving capacity around, as we’ve always done.”
Galardo highlighted that Air Canada is proactively evaluating capacity to U.S. leisure destinations and could reallocate resources to other markets if demand softens. “If we do see some softness on the U.S. side, because we’re not seeing it just yet, we can offset it with some technical changes,” he said.
The potential for U.S. tariffs on Canadian imports, including a 25 per cent levy on goods and a 10 per cent tariff on energy, has raised concerns among Canadian travelers. While a 30-day reprieve was announced last week, the tariffs could take effect early next month. Some Canadians have already canceled travel plans to the U.S. in response to the threat.
Galardo said Air Canada has not yet seen a significant impact on near-term bookings but is preparing for a potential slowdown in U.S. demand. “If we could de-risk this a little bit and be a bit proactive and move capacity into other sectors where we see strength, I think that’s the right move right now in this context,” he explained.
Domestically, Galardo noted that the Canadian market is currently “over capacity,” with some competitors adding more capacity than the market can absorb in the short term. However, he expressed optimism about a more balanced market later in the year, particularly if Air Canada shifts capacity from U.S. leisure destinations.
Analysts remain cautiously optimistic about Air Canada’s outlook. National Bank analyst Cameron Doerksen noted that the airline has the ability to mitigate potential impacts from geopolitical risks, while ATB Capital Markets analyst Chris Murray highlighted the stock’s attractive valuation relative to U.S. carriers.
Citi analyst Stephen Trent pointed out that Air Canada’s guidance assumes fuel rates below current prices, which could pose a challenge. However, he acknowledged that the strong quarterly results could help stabilize the stock in the near term.
As Air Canada navigates geopolitical uncertainties and market volatility, its ability to adapt capacity and maintain strong demand trends will be critical to its performance in 2025.