Air Canada Posts Record 2025 Profit as Canada-U.S. Air Travel Slumps

Air Canada has capped a turbulent year for North American aviation with a record profit in 2025, even as travel between Canada and the United States softens for the eleventh straight month. The flag carrier’s financial performance highlights a sharp pivot in demand away from traditional cross-border routes and toward long-haul international and domestic leisure travel, forcing airlines and destinations on both sides of the border to rethink their strategies.

Record 2025 Profit in a Year of Diverging Markets

Air Canada reported operating income of about 918 million Canadian dollars for 2025, a dramatic turnaround from the operating loss recorded a year earlier. Revenue climbed roughly 7 percent year over year to more than 22 billion Canadian dollars, supported by resilient demand on international routes to Europe, Asia and the South Pacific, along with solid performance on key domestic corridors. The carrier’s adjusted earnings before interest, taxes, depreciation and amortization surpassed 3.1 billion Canadian dollars, underscoring a robust recovery in profitability.

This performance comes despite a difficult backdrop in the transborder market, where travel between Canada and the United States has repeatedly underperformed both domestic and non U.S. international segments. Management has attributed the earnings rebound primarily to higher yields on long haul flights, improved premium cabin demand, and cost discipline following several years of restructuring and network optimization.

Air Canada also ended 2025 with a liquidity buffer of roughly 7.5 billion Canadian dollars and a leverage ratio around 1.7 times, giving the airline flexibility to continue investing in its fleet and product while cushioning against economic or political shocks. Free cash flow remained positive at just under 750 million Canadian dollars, even after increased capital expenditures on new aircraft and cabin upgrades.

The turnaround builds on record revenue reported for 2024 but is more notable for the significant expansion in margins. Where 2024 was characterized by heavy one time labor costs and pressure from rising expenses, 2025 saw those headwinds ease, allowing revenue gains to flow far more directly to the bottom line.

Cross Border Travel Slows as Canadians Look Beyond the United States

While Air Canada’s global network has thrived, transborder traffic has moved in the opposite direction. Statistics Canada data show air travel from Canada to the United States falling 7.5 percent in 2025 compared with 2024, with December marking the eleventh consecutive month of year over year declines. Passenger counts to U.S. destinations at the country’s eight largest airports were more than 12 percent below 2019 levels, even as overall traffic surpassed pre pandemic volumes.

Major hubs have felt the impact. Toronto Pearson reported an 11.3 percent decline in U.S. bound passengers in December 2025, Vancouver was down 14.1 percent, Montreal 10.5 percent and Calgary 13.6 percent. In that month, transborder travel accounted for just over 23 percent of screened passengers at Canada’s largest airports, down from more than 26 percent a year earlier, reflecting a structural shift in where Canadians are choosing to fly.

Outside the United States, however, international traffic has surged. Non U.S. international passenger volumes in December were nearly 9 percent higher than in 2024 and more than 20 percent above 2019 levels. Across 2025 as a whole, international routes beyond the United States led Canada’s post pandemic recovery in air travel, with passenger volumes up about 15 percent from 2019. Domestic traffic has also inched ahead of pre pandemic levels, suggesting that Canada’s air travel rebound is robust, but increasingly oriented away from U.S. destinations.

Industry analysts point to a combination of factors behind the transborder slowdown, including a weaker Canadian dollar, shifting consumer sentiment amid renewed trade and political tensions, and the growing attractiveness of farther flung destinations where travelers perceive they are getting more value for money. Those dynamics are reshaping route networks and capacity decisions on both sides of the border.

Capacity Cuts and Weak Bookings on Canada U.S. Routes

Airlines have been quick to respond to the weakening cross border demand. Schedule data from aviation analytics firms show that overall capacity between Canada and the United States for the second quarter of 2025 has been trimmed by more than 4 percent compared with plans filed earlier in the year, with Canadian carriers cutting seats at an even faster rate. The total number of flights scheduled for April alone has been reduced by roughly 400, reflecting the retreat from underperforming routes and frequencies.

Some of the country’s busiest transborder city pairs have seen adjustments. High frequency routes such as Toronto to New York and Montreal to Florida gateways remain critical, but airlines have pared back off peak frequencies and redeployed aircraft toward international leisure destinations that are recording stronger advanced bookings. Forward booking data for the spring and early summer 2025 period show persistently softer demand for U.S. trips compared with both domestic and other international markets.

In parallel, several carriers are recalibrating their U.S. offerings from outright growth to targeted, high yield opportunities. Where 2024 planning emphasized restoring lost transborder connectivity, 2025 schedules show a greater willingness to consolidate capacity, focusing on routes with strong business traffic, robust cargo demand, or strategic alliance value through onward connections with U.S. partners.

The result is a transborder network that is still extensive by global standards, connecting nearly 190 city pairs, but less expansive than airlines had originally envisioned heading into 2025. The pullback speaks to the speed with which consumer preferences have shifted and the challenges airlines face in forecasting demand in an increasingly politicized cross border environment.

Global Network Strategy Offsets Weakness to the South

For Air Canada, the softness in U.S. demand has accelerated a strategic pivot already underway toward sixth freedom traffic and long haul international markets. The airline has been actively building its hubs in Toronto, Montreal and Vancouver as global connection points, capturing passengers traveling between the United States and Europe or Asia who connect via Canada, as well as flows between secondary cities across its domestic network and overseas destinations.

In 2025, international routes to Europe, the Middle East and Asia delivered some of the strongest revenue growth in the carrier’s network. New and restored services to cities such as Copenhagen, Osaka and Dubai, along with capacity increases on core transatlantic routes, helped lift yields and load factors. Premium cabins have been particularly strong performers, with business travel gradually recovering and leisure travelers increasingly opting for upgraded products on long haul journeys.

Air Canada has also continued to refine its U.S. footprint to support this global strategy. While overall transborder traffic has sagged, certain U.S. cities that function as key feed points for international connections have retained, or even gained, capacity. The airline has highlighted the role of U.S. preclearance facilities at Canadian airports, which allow American bound passengers to clear U.S. customs and immigration before departure, as a competitive advantage for connecting traffic in both directions.

The focus on connecting flows has further diversified revenue away from purely origin and destination markets, cushioning the impact of weaker Canada U.S. point to point demand. That diversification is visible in the 2025 financial results, where growth in international and connecting revenues has more than offset the drag from transborder softness.

Political Tensions and Currency Shifts Influence Traveler Choices

The decline in cross border air travel has not occurred in a vacuum. Political tensions between Ottawa and Washington, including an escalation in trade disputes and sharp rhetoric from U.S. leadership about Canada’s economic and security policies, have weighed on consumer sentiment. In Quebec, airport authorities in Montreal have explicitly linked a double digit drop in U.S. traffic during 2025 to changing travel preferences amid heightened political friction and talk of punitive tariffs.

At the same time, the Canadian dollar’s relative weakness has made U.S. vacations more expensive in local currency terms, nudging price sensitive travelers to consider alternative destinations. Tour operators and online agencies report increased interest in all inclusive packages to the Caribbean, Mexico and Europe, where travelers feel they can better control overall costs, particularly for accommodation and ground expenses.

On the American side, shifting perceptions of cross border travel have also played a role. New or revived political debates around trade, energy pipelines and border security have created a more uncertain atmosphere, even in the absence of major changes to visa or entry requirements for most travelers. While there are no significant structural barriers preventing U.S. residents from visiting Canada, some tourism boards report that prospective visitors now gravitate to destinations perceived as being further removed from political flashpoints.

For airlines, these factors translate directly into booking patterns. Routes serving traditional Canadian winter escapes in Florida and sunbelt states have been notably softer than expected, while flights to Europe, the Caribbean and Latin America have booked up earlier in the season. The interplay of politics, currency and perception has therefore become a central variable in network and pricing decisions for carriers like Air Canada.

Tourism and Airport Hubs Feel Uneven Effects

The rebalancing of travel flows is producing clear winners and losers among destinations and airport hubs. In the United States, cities heavily reliant on Canadian visitors, such as Orlando, Las Vegas and several border state gateways, have reported weaker hotel occupancies and lower spending from the Canadian market. Tourism boards are stepping up marketing efforts north of the border and working with airlines to preserve key nonstop routes, but the broader macroeconomic and political backdrop has made quick reversals difficult.

Canadian hubs, by contrast, are experiencing robust overall growth despite the transborder slump. Statistics Canada data show that total passenger volumes at the country’s eight largest airports rose more than 2 percent in 2025 compared with 2024 and nearly 5 percent above 2019 levels. International traffic outside the United States has more than filled the gap left by fewer U.S. bound travelers, leaving gate utilization and airport revenues on an upward trajectory.

Montreal and Vancouver, in particular, have consolidated their positions as gateways to Europe and Asia. Vancouver’s links to East Asia and the South Pacific have benefitted from the reopening of key markets and a rebound in visiting friends and relatives travel, while Montreal has expanded its European footprint and leveraged its bilingual identity in marketing campaigns to French speaking travelers.

However, the shift also presents operational challenges. Airport authorities must balance gate and slot allocations between domestic, U.S. and other international flights, while ensuring that security, customs and preclearance facilities are used efficiently. Investments in infrastructure designed primarily for transborder growth made earlier in the decade are now being reevaluated in light of the new demand mix.

Fleet Investments and Network Bets for the Next Phase

Air Canada’s record profit in 2025 is already shaping its investment and network decisions for the coming years. The airline is proceeding with plans to renew and expand its long haul fleet, adding new generation widebody aircraft that offer lower fuel burn and improved passenger comfort. These jets will support further growth on high demand international routes and provide flexibility to upgauge or downgrade capacity as market conditions evolve.

On the narrowbody side, the carrier is continuing to roll out fuel efficient aircraft across domestic and regional networks, including select transborder routes that remain strategically important. Management has emphasized that the airline will be disciplined about allocating capacity to U.S. destinations, focusing on profitability and strategic value rather than simply rebuilding pre pandemic seat counts.

The broader North American airline industry is watching closely. Other major carriers in the region, including U.S. partners, are facing similar questions about the long term trajectory of cross border demand and the relative appeal of international versus domestic flying. For now, Air Canada’s experience suggests that a diversified global network, strong hubs and a focus on connecting traffic can deliver record financial results even when a large, historically reliable market segment underperforms.

As 2026 unfolds, travelers can expect to see more non U.S. international options from Canadian airports, a selective slate of U.S. routes tailored to business and high value leisure demand, and continued experimentation with scheduling and pricing as airlines adapt to the shifting landscape. Whether cross border travel rebounds or remains structurally weaker will go a long way in determining how sustainable Air Canada’s current profit trajectory proves to be.