Air Canada (TSX: AC) has faced big challenges over the last few years. It all started with the pandemic, which shut down everything. Then, we had rising costs, inflation, and finally the current struggles with tariffs coming out of the United States. This has kept Air Canada’s stock trading below $20 during most of the last five years, compared to its prior highs of more than $50 back in 2019.
Earlier this year, Air Canada’s stock sank to under $14, which was a level not seen since the early days of the pandemic. At that time, I wrote about how I believed it was way too cheap to ignore. While some stock price weakness was certainly justified, it may have fallen too far. Hence, the stock is up 44% since its low of April 2025.
Is this a sign of a sustained recovery to come, or is Air Canada stock still facing too many headwinds?
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Air Canada posts lower-than-expected results
In the airliner’s latest quarter (Q2/2025), earnings per share (EPS) came in at $0.60. This compares to EPS of $0.98 in the same quarter last year and expected EPS of $0.75. So, as we can see, the result was significantly below both last year’s results and expectations. This is obviously not a good thing.
This result was driven by both top-line and bottom-line pressures. On the top line, revenue was hit by economic and geopolitical uncertainty and reduced demand for travel to the United States. On the bottom line, earnings were hit by increased labour costs as well as airport and maintenance fees. For example, labour expenses increased 16% versus last year.
All of this showed up in Air Canada’s cost per available seat mile, or CASM, which is a key metric that the airline industry tracks in order to assess the operational efficiency of the business. Air Canada’s adjusted CASM for the quarter was, in fact, up 6.4% to 14.4 cents.
What’s next?
Air Canada has been working to enhance its network coverage, make adjustments to hub airport schedules, and increase revenue through fare enhancements. While passenger revenue only increased by 1%, certain segments are doing quite well. For example, transatlantic travel is seeing a lot of demand. Also, Air Canada’s premium travel product is seeing strong demand. The airliner will continue to invest in these areas in order to build momentum in demand and revenue.
Similarly, while we can expect cost pressures to continue, the airliner is taking steps to navigate its way through this. For example, Air Canada has put a $150 million cost reduction program in place. To date, the company is making good progress in its goal to reduce unit costs. This will lessen the impact of cost pressures, but despite these efforts, we should still expect CASM to come in at the upper end of the company’s guidance of 14.25 cents to 14.5 cents.
The bottom line, though, is that labour costs will continue to be challenging in the coming quarters and years. Both pilot and flight attendant salaries have been increased, and the upward pressure remains. Air Canada is working overtime to try to mitigate the effects of this.
Is Air Canada stock still cheap?
Air Canada stock is currently trading at 13 times this year’s estimated earnings and seven times next year’s estimated earnings. So, the stock does appear inexpensive. However, with so many uncertainties to both the top- and bottom-line numbers, I question whether this is cheap enough, as there is likely downside risk to Air Canada’s earnings estimates, in my view.
The airliner is scheduled to report its third-quarter results in late October.
