The Canadian flag carrier disclosed the measures on Thursday, explaining that it had already removed more than two percentage points from its planned capacity for the first quarter of next year in a proactive effort to protect profit margins.
The decision comes amid persistent volatility in global energy markets following the outbreak of the Iran war, which has driven up aviation fuel costs and forced airlines to reconsider their operating strategies. Although carriers have raised ticket prices to offset the additional expenses, higher fares have not kept pace with the surge in fuel costs.
Speaking during a post-earnings conference call, Air Canada executives told investors that the capacity reductions were intended to help the company navigate the challenging operating environment and limit the impact of rising expenses on its financial performance.
The airline has also significantly revised its fuel price expectations for the final quarter of the year. It now expects jet fuel prices to average approximately C$1.72 per litre, equivalent to about $1.23, compared with its previous estimate of C$1.29 per litre.
The higher forecast has contributed to a downward revision of the company's full-year earnings outlook, reflecting the growing financial burden associated with elevated fuel prices.
Air Canada now expects adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of between C$2.4 billion and C$2.7 billion for the full year, compared with its earlier projection of C$2.9 billion to C$3.2 billion.
The revised outlook highlights the extent to which rising operating costs are undermining profitability across the aviation sector, even as passenger demand remains relatively resilient.
Air Canada is not alone in responding to the pressure. Earlier this month, major United States carriers, including Delta Air Lines and American Airlines, also reduced their full-year earnings forecasts, warning that airlines might have to implement deeper capacity cuts to protect ticket prices and contain costs.
The industry is facing a difficult balancing act as carriers attempt to recover higher fuel expenses through fare increases without discouraging passengers from travelling.
With the Iran war showing no immediate signs of ending, uncertainty remains over how much of the increase in fuel prices airlines can transfer to customers before higher ticket prices begin to weaken demand.
Despite these challenges, Air Canada reported that winter travel demand remained steady across most geographical markets, although the domestic market experienced some pressure.
The airline's latest financial results also presented a mixed picture. Operating revenue increased by approximately 21 per cent to C$7 billion in the three months ended September, indicating continued growth in revenue despite the difficult cost environment.
However, net income declined significantly during the period, falling to C$139 million, or C$0.49 per share, from C$264 million, or C$0.88 per share, in the corresponding period a year earlier.
The decline in net income underscores the pressure that higher operating expenses can exert on the bottom line, even when revenue records substantial growth.
For Air Canada and its industry peers, the coming quarters will likely depend on their ability to manage fuel expenditure, adjust flight schedules and maintain pricing power without significantly affecting passenger demand.
The planned capacity reductions represent one of the airline's immediate responses to the challenge, as the carrier seeks to preserve profitability amid continued uncertainty over fuel prices and the wider geopolitical environment.