Airline stocks have been through a lot over the last several years, and Air Canada (TSX:AC) is no exception. The Canadian airliner hit all-time highs in 2019, only to come crashing down when the pandemic hit. Since then, the airline stock has struggled to get back to those levels once more.
Yet there are reasons to believe this airline stock could take off once again. In fact, there are reasons to believe it might just hit those heights the company saw back in 2019. So, let’s look at it and what investors need to watch in the quarters and years ahead.
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The bull side
Let’s look at the good news first. Air Canada stock recently reported its earnings, which showed the company is on the path upwards. Operating revenue hit $5.6 billion, a 2% rise over last year. Operating income also rose to an operating margin of 7.4% at $418 million. Plus, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $909 million, a margin of 16.1%.
This all showed that Air Canada stock is back. The company led major North American airlines in on-time performance for May and June. What’s more, it strategically redirected capacity to high-demand markets. This saw increased demand for its premium services.
While Air Canada stock doesn’t offer a dividend, it did execute a $500 million share-repurchase program, decreasing outstanding shares to 296 million. It also repaid its convertible notes, showing the commitment to shareholder value.
Looking ahead, the company is undergoing a major rebound. It forecasts 2025 adjusted EBITDA of between $3.4 and $3.8 billion, as well as a 36% increase in operating revenue by 2028. This would aim for about $30 billion, up from $22 billion expected in 2024, much of this supported by international travel in Asia-Pacific and China.
The bear side
That’s not all to say that there aren’t items to watch. Perhaps the most obvious would be the recent strike. This was a significant setback as labour disputes with the Canadian Union of Public Employees (CUPE) led to a temporary suspension of flights. It forced Air Canada stock to suspend third-quarter and full-year 2025 guidance, making investors nervous.
Furthermore, Air Canada stock has needed to be creative to recover. After seeing weaker transatlantic demand, it offered triple Aeroplan points for flights to Canada and the United States. Macroeconomic issues also affect performance, and the stock still suffers from a sharp decline.
Looking ahead, investors need to be aware of potential risks from geopolitical tensions, fluctuating energy prices, economic conditions and more. These are just the macro issues. Air Canada itself also faces challenges, and its current valuation could be priced into the share price.
Bottom line
If you’re an investor seeking growth and are alright with the level of risk from Air Canada stock, now could be the time to buy. It’s managed to wade through a labour strike and a pandemic. Now, it’s looking for future growth opportunities. While it’s not soaring yet, there could be clear skies in the near future.
