The Canada to Europe route is one of the largest drivers of profitability in the peak summer period for Canadian airlines, notes National Bank.
In an update to his March outlook, analyst Cameron Doerksen reports that, despite the fuel prices spike, capacity for summer 2026 (May 1 to October 31) has stayed relatively consistent since the beginning of March, with overall seats still expected to be up 5.2% y/y, unchanged since March.
He notes that summer 2025, jet fuel spot averaged C$0.89/liter, but the summer average so far is C$1.45/liter (+63%) with the spot price currently at C$1.37/liter. Airlines will need to increase fares by about 15% to materially offset higher fuel cost, based on the current spot jet fuel price, he calculates.
However, based on spot fare checks for several key Canada-Europe routes, as well as third-party observations from KAYAK, while fares are higher on some key routes, other busy routes show fare decreases. On the routes that do show higher fares, the increases are less than the ~15% Doerksen sees as necessary to fully offset higher fuel costs.
The Atlantic market is the single largest summer market for Air Canada (AC.TO), representing ~35% of the airline's total passenger revenue in the second and third quarters last year. Air Canada has had some success in raising fares to offset higher fuel prices, but higher costs will still likely weigh on margins through the summer. With more exposure to premium travel than other Canadian carriers, Air Canada is arguably best positioned of all the Canadian carriers to raise fares to offset fuel, Doerksen says.
Air Canada is rated sector perform with a price target of $22.00 on its shares.
The summer period and the trans-Atlantic market specifically is the most important driver of profits for Transat, but as a leisure-focused carrier, raising fares to offset the fuel price spike may be tougher than for other large network carriers with greater premium customer exposure, Doerksen adds. He expects the higher fuel prices to weigh on profitability for Transat in the coming quarters. Transat is rated underperform with a price target of $2.25 on its shares.
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