Air Canada's stock gained nearly 3% in Toronto trading Monday, buoyed by a sharp decline in crude oil prices and a tentative labor agreement with thousands of unionized workers. The shares were trading near C$20.90, up from Friday's close of C$20.30, with an intraday range of C$20.62 to C$20.98.
The rally came as the S&P/TSX composite index hit a record intraday high, rising 0.7% to 34,778.98, after oil prices fell about 5% on reports of potential peace talks between the United States and Iran. For airlines, fuel is a major cost component, and lower oil prices can ease pressure on fares, margins, and capacity decisions.
Brian Madden, chief investment officer at First Avenue Investment Counsel, noted that even a small chance of de-escalation in the Iran conflict could push oil lower and lift equities, though he expressed skepticism about the durability of any talks.
Air Canada also received a boost from news late last week that it had reached a tentative contract deal with Unifor, covering approximately 6,000 members of Local 2002 who work at airports, call centers, Aeroplan, and customer support across Canada. The union plans ratification meetings from June 1 to June 12, with the previous collective agreement having expired on February 28. Details of the deal remain confidential until a vote and board approval.
While the labor progress provides some support heading into the summer travel season, the larger overhang for the stock remains fuel costs. Air Canada withdrew its full-year 2026 financial outlook on April 30, citing volatility in jet fuel prices that made second-half forecasts unreliable. First-quarter operating revenue was C$5.785 billion, with operating income of C$117 million and adjusted EBITDA of C$623 million.
CEO Michael Rousseau stated the airline aims to offset 50% to 60% of additional fuel costs in the second quarter through commercial and cost measures, highlighting strong demand across its network. However, Reuters reported that Air Canada has paused near-term share buybacks and is reviewing less-profitable routes after fuel costs nearly doubled since the Iran conflict escalated in late February.
The pressure is not unique to Air Canada. Alaska Airlines also dropped its annual outlook, and British Airways parent IAG flagged that profit, cash flow, and capacity would fall short of earlier targets due to higher fuel costs and supply chain issues. IAG CEO Luis Gallego said the company is now focused on yields, costs, and capacity.
Canadian markets were open Monday while U.S. exchanges were closed for Memorial Day, so there was no direct comparison for U.S.-listed airline stocks. The rally hinges on several factors that could shift quickly: the Unifor deal is not yet ratified, its financial terms are undisclosed, and any renewed spike in jet fuel could lead to higher fares, route cuts, or margin compression.
For now, investors are leaning on the near-term positives: a potential labor agreement, oil prices retreating from recent highs, and a record-setting Canadian market. The key test for Air Canada will be whether lower fuel costs translate to improved profitability or merely help the airline navigate another turbulent quarter.
