Air Canada (TSX:AC) stock has been flying through some turbulence in 2025. Even though the shares have staged a noticeable rebound over the past three months, they remain down more than 13% for the year. The decline reflects a mix of softer demand for transborder travel, decline in passenger capacity utilization, and weaker earnings, all against a backdrop of global uncertainty.
As Canada’s largest airline company is navigating through a period of significant economic and geopolitical uncertainty, should you buy the dip in its stock? Let’s take a closer look.
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Here’s why Air Canada stock is down
The airline’s biggest drag has been the U.S. market. In the first half of 2025, passenger revenue slipped 1%, mainly because fewer people were travelling between Canada and the United States. A weaker Canadian dollar made trips south of the border more expensive, while geopolitical tensions and ongoing trade uncertainties, including talk of tariffs and retaliatory measures, created hesitation for travellers.
Air Canada has also had to contend with evolving geopolitical issues affecting the Middle East and India, as well as stiffer competition in routes linked to China and Hong Kong. Despite those headwinds, not all parts of the business have been under pressure. Revenue from domestic routes, transatlantic flights, and Latin American markets has helped cushion the blow. The company also saw gains from increased cargo volumes in the Pacific, higher package sales through Air Canada Vacations, and steady growth in Aeroplan, its flagship loyalty program.
What’s ahead for Air Canada?
Looking ahead, Air Canada has a mix of opportunities and challenges, especially in the near term. The airline’s diversified revenue streams, spanning passenger travel, cargo operations, Air Canada Vacations, and its Aeroplan loyalty program, are giving it resilience in the face of shifting travel patterns and geopolitical uncertainty.
While capacity in the Canada–U.S. market is expected to decline, Air Canada is focusing on its international network, where management anticipates strong demand through the end of this year and into early 2026. The booking outlook suggests a notable shift from historic patterns, with fall and early winter periods showing more relative strength than usual. The carrier is also seeing solid momentum in the “Sun” leisure markets, including Naples, Porto, Prague, and Manila, where it has redirected some capacity from the transborder segment.
The airline company’s fundamentals are strengthening. Its diversified businesses are delivering strong performances, and advance ticket sales surged 24% year over year in the first half of 2025. This positions the airline for a potentially strong second half. However, competitive headwinds remain, particularly in the Pacific region, where additional capacity, mainly from Chinese and Hong Kong carriers, could put pressure on yields and soften unit revenues.
On the cost side, the airline is making meaningful headway on its $150 million cost-reduction plan, with most of the savings expected to be realized this year. Even so, cost pressures aren’t disappearing. Rising labour expenses, higher airport and navigation fees, depreciation, and maintenance costs will keep unit costs elevated. Adding to the near-term risks is the possibility of a strike, which could disrupt operations and dampen investor sentiment.
Is Air Canada stock a buy?
Air Canada’s strong brand, global network, and diversified revenue base put it in a solid position to navigate the macro uncertainties. However, given the competitive pressures, cost headwinds, and operational risks, this Canadian stock is worth watching for now rather than buying on the dip.
