Air Canada: Tapping Trapped Loyalty Equity Value; 2Q26 Equity and Credit Considerations

Research evidence excerpt

J P M O R G A N

North America Fundamental

Research

14 August 2026

Air Canada

Tapping Trapped Loyalty Equity Value; 2Q26 Equity and

Credit Considerations

Neutral

AC.TO, AC CN

Price (13 Aug 26):C$30.41

▲Price Target (Dec-27):C$36.00

Prior (Dec-26):C$23.00

Earnings took the backseat, as AC announced (officially, though media reported

earlier in the week) that it has sold a 25% equity stake in its Aeroplan Loyalty

program for C$2.5bn with funds being used for debt repayment ($1.2bn, ~half-turn

deleveraging) and share repurchases ($800mm, expected to be completed next

month). The implied C$10bn valuation comfortably surpasses the C$8.3bn market

cap of AC and the 21x implied EBITDA multiple confirms the value of a scalable

loyalty program few airlines enjoy. The valuation here is remarkable when

measured against “core” airline earnings metrics and how the implied valuation

stacks up against the (even post move higher) airline equity / enterprise values.

Remember this: AAdvantage is “valued” at $49bn for TLB LTV purposes (we

know this as fact). Yes, this figure remains insanely high against an AAL equity

market cap of just under $10bn and an EV of just under $38bn, but directionally

it’s not (in theory) that far off as American is 4x larger vs. Air Canada on the top

line. Now, loyalty value is certainly not 100% correlated to revenue as margins and

business mix matter more, but for illustrative purposes you see where we are

heading here in terms of the art of the possible (4x Air Canada’s valuation is $40bn

in case you need us to do the math). And while we doubt United or Delta will

consider a similar near-term deal given current stock levels / multiples, we believe

their loyalty spin playbooks are ready when their stocks inevitably get stuck again

in airline equity purgatory (and in the case of UAL, perhaps the loyalty playbook

is sitting on the shelf next to the UAL-AAL merger playbook, with a “to be opened

later” red seal). We note the divergence in equity performance on Wednesday likely

coming to the same conclusion - as AC jolted +10% and US airline peers were all

lower (oil was up). On the equity side, our PT is rolled forward and establishes a

YE27 PT of $36.

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