Canada’s flag carrier made the headlines this month, announcing a major transborder joint business agreement with an American counterpart. Air Canada (TSX: AC) and United Airlines (NASDAQ: UAL), founding members of Star Alliance, plan to operate as a single joint business across the Canada–U.S. transborder market.
While the proposed expansion agreement is subject to government approval, investors are watching skeptically. Airline stock prices usually swing with macroeconomic trends, operating costs, and consumer demand. This time, potential route changes could affect primarily Canadian passengers.
On October 16, 2026, the day of the announcement, AC fell below $22 for the first time since June 12, 2026. At $21.55 per share, current investors are still up 11.7% year-to-date. However, any action that could affect profitability could dampen market sentiment.
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Route changes and domestic travel
Air Canada and United Airlines will coordinate operations covering flight schedules, pricing, and seating capacity as well as advertising. The two carriers will share revenues from their cross-border operations. By connecting passengers through each other’s hubs, the agreement should make business and leisure travel across North America seamless.
Transport Canada is reviewing the proposed agreement, including a public interest assessment. The government agency will evaluate the overall economic impact. It also wants to ensure the arrangement supports competition and serves the public interest.
At first glance, Canadian travellers will lose direct flights to specific U.S. destinations. By removing short, non-stop flights, travel time will be longer. On the other hand, Canadians travelling beyond the region will have better options, if not direct access to global destinations. Air Canada intends to pull out non-performing U.S. routes.
Reasons and major considerations
The Star Alliance was formed in 2022 but did not include high-traffic routes. This new arrangement seeks to expand and absorb 10 highly profitable hubs. These high-volume routes will enable the airlines to coordinate fully and share in the profits from the interconnected North American network.
Macroeconomic factors, notably persistent high inflation and a weaker Loonie, are major considerations. Casual vacations and trips to the U.S. are now more expensive. Canadians would need to factor in the exchange rate against the greenback when booking flights and allocating budgets. Air Canada would rather shift to higher-revenue international routes with strong demand.
Jet fuel is priced in U.S. dollars, which directly raises operating expenses and drives airfares higher. Shorter transborder flights also deliver thinner profits. Moreover, Air Canada pays its fuel bills in USD but generates revenue in Canadian dollars.
Financial performance
Air Canada reported record second-quarter revenues of $6.3 billion in Q2 2026, up 11.3% year-over-year. However, in the first half of 2026, the carrier posted a net loss of $130 million, down from $84 million in net income a year ago. Nonetheless, President and CEO Michael Rousseau remains positive.
Rousseau said, “Cash generation and balance sheet strength remain key anchors of Air Canada’s financial foundation.” He believes the strong net cash flow from operations ($651 million) and free cash flow ($174 million) during the quarter will continue to fuel AC’s ability to invest in the business and return capital to shareholders.
Hard operational decision
Air Canada continues to navigate macro cost pressures but needs to make hard operational decisions. Investors hope the new joint arrangement will deliver sustainable profitability over the long term. The stock will rise or fall depending on the outcome.
