Air Canada's 2025 Profit Forecast Revisions: Navigating US Travel Slowdown and Global Aviation Outlook

In the third quarter of 2025, Air Canada reported operating revenues of $5.774 billion, a 5% decline year-over-year, with an operating income of $284 million and an adjusted EBITDA of $961 million, according to an Air Canada Q3 release. These figures, while meeting expectations after accounting for summer labor disruptions, underscore a narrowing of the airline's 2025 core profit forecast. The company now anticipates full-year adjusted EBITDA between C$2.95 billion and C$3.05 billion, down from its earlier range of C$2.9 billion to C$3.1 billion, according to a Reuters report. This revision reflects a confluence of challenges, including a U.S. travel slowdown and broader sector-specific risks.

The US Travel Slowdown: A Dual-Edged Sword

The U.S. travel market, a critical revenue driver for Air Canada, has been hit by two interlinked headwinds: trade tensions and labor unrest. President Donald Trump's steep tariffs on Canadian imports have dampened cross-border demand, while a high-profile strike by nearly 10,000 flight attendants in Q3 2025 led to the cancellation of thousands of flights and a one-time labor-related charge of C$173 million, Reuters reported. These disruptions have eroded consumer confidence and shifted spending toward luxury and international travel, a trend highlighted in a Marriott analysis.

The ripple effects of the U.S. slowdown extend beyond Air Canada. Marriott International, a bellwether for travel demand, reported a -0.4% decline in U.S./Canada RevPAR for Q3 2025, signaling weaker business and leisure travel, according to the Marriott analysis. This trend aligns with the U.S. government shutdown in fall 2025, which further depressed corporate and government travel. For Air Canada, the challenge lies in balancing cost management with capacity adjustments to mitigate revenue leakage in a market that accounts for over 40% of its operations.

Global Aviation Recovery: Progress and Persistent Risks

The global aviation sector has made significant strides in post-pandemic recovery, with passenger demand and capacity surpassing 2019 levels in many regions. According to the ATPI outlook, international air connectivity surged by 23.7% in 2024, driven by the Asia-Pacific and transatlantic markets. However, regional disparities persist. Southeast Asia and Southern Africa remain below 2019 capacity levels due to geopolitical instability and supply chain bottlenecks, the ATPI outlook notes.

For Air Canada, the Atlantic market has emerged as a bright spot, with premium cabin performance and strong booking momentum for Q4 2025 and Q1 2026, as noted in Air Canada's Q3 release. This aligns with broader industry trends: airlines are increasingly prioritizing premium yield and ancillary revenue to offset lower economy load factors. Yet, rising operational costs-particularly jet fuel prices projected to reach $115 per barrel in 2025-pose a significant threat to margins, according to the ATPI outlook.

Strategic Risks and Adaptation Strategies

The U.S. travel slowdown has exposed systemic vulnerabilities in the aviation sector. As noted by the ATPI outlook, airlines are grappling with aircraft delivery delays, an aging fleet (average age of 14.6 years), and geopolitical airspace closures that inflate fuel costs. For Air Canada, these risks are compounded by its reliance on U.S. business travelers and the need to invest in fuel-efficient aircraft to counteract surging energy prices.

To navigate these challenges, Air Canada has adopted a dual strategy: optimizing premium cabin offerings and accelerating sustainability initiatives. The airline's Environmental Cost Surcharge, introduced to fund Sustainable Aviation Fuel (SAF) adoption, reflects its alignment with industry-wide net-zero goals, according to an IATA release. While SAF currently constitutes a small portion of global production, Air Canada's early investment positions it to benefit from regulatory tailwinds and consumer demand for greener travel.

Outlook and Investment Implications

Despite near-term headwinds, Air Canada's Q3 results highlight resilience in its Atlantic and premium segments. The company's emphasis on cost discipline-evidenced by its 16.6% adjusted EBITDA margin-suggests a capacity to weather the U.S. slowdown. However, investors must remain cautious about sector-wide risks, including fuel volatility and geopolitical tensions.

For long-term investors, Air Canada's strategic pivot toward premium yield and sustainability offers a compelling narrative. The airline's ability to capitalize on transatlantic demand and mitigate U.S. market risks will be critical in determining whether its revised 2025 forecast translates into a sustainable recovery.