In the decade prior to the COVID-19 pandemic, Air Canada (TSX:AC) was among the best-performing TSX stocks. However, over the last few years, Air Canada has wrestled with higher interest rates, elevated debt levels, a volatile macro environment, and geopolitical tensions, among others.
In August 2025, Air Canada stock still trades 62% below all-time highs. So, let’s see if this TSX stock is a value buy or a value trap as it trades below $20.
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Can Air Canada stock recover in 2025?
Air Canada presents a compelling investment opportunity based on its strong second-quarter performance, strategic network expansion, and robust financial management amid challenging market conditions.
Moreover, its operational excellence was recognized at the 2025 Skytrax World Airline Awards, as Air Canada was named the best airline in North America. This recognition reflects improvements in customer experience, resulting in high Net Promoter Scores and strong on-time performance.
The airline achieved two consecutive months as the #1-ranked carrier for on-time performance, demonstrating operational reliability that drives customer loyalty and premium pricing power.
Air Canada delivered solid Q2 results with $5.6 billion in revenue and $909 million in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), indicating a 16.1% margin.
Notably, Air Canada achieved these results while navigating geopolitical challenges, reduced transborder demand, and competitive pressures in specific markets. Premium cabin revenues grew 5% year-over-year, now representing 31% of total passenger revenues, a full percentage point higher year over year, which showcases pricing power in high-value segments.
The airline’s sixth freedom revenue strategy proved effective, growing 17% with strong performance across Atlantic and Pacific markets. Management’s disciplined capacity allocation away from weaker U.S. leisure markets toward profitable international routes indicates operational agility. Further, new route additions to Naples, Porto, Prague, Manila, and planned Latin American expansion create additional revenue diversification for the airline giant.
Air Canada completed a $500 million substantial issuer bid in Q2, returning capital to shareholders as part of a $2 billion share buyback program through 2028. It has already repurchased over 62 million shares, demonstrating a commitment to reducing pandemic-era dilution while maintaining balance sheet strength with a 1.4% leverage ratio.
Is Air Canada stock undervalued?
The upcoming arrival of A321XLR aircraft in 2026 will unlock new profitable market opportunities, while the continued expansion of the high-margin Aeroplan program provides recurring revenue growth.
Analysts tracking Air Canada stock forecast sales to rise from $22.3 billion in 2024 to $28.7 billion in 2029, indicating an annual growth rate of 5.2%. Comparatively, adjusted free cash flow is forecast to expand from $1.3 billion to $2.9 billion in this period.
If AC stock trades at a forward free cash flow multiple of eight times, which is quite reasonable, it should gain close to 300% over the next three years. Analysts remain bullish on the TSX stock and forecast it to gain 28%, given consensus price target estimates.
With reaffirmed full-year guidance and a diversified revenue base including cargo and vacation packages, Air Canada stock is well-positioned to capitalize on recovering travel demand while maintaining operational discipline.
