Looking at Air Canada’s (TSX:AC) five-year stock price graph leaves me underwhelmed. It’s clear to me that investors probably want to believe in the stock, but there are roadblocks. Back when Air Canada’s stock was trading below $15, I think the shares were screaming value. Since then, the stock has risen to almost $20.
So, is Air Canada stock a good buy today?
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Air Canada’s growth strategy
On the one hand, Air Canada is embarking on a growth plan that looks quite interesting. By focusing on pockets of strength, like Atlantic and sun destinations, Air Canada is attempting to find growth.
Also, Air Canada has been increasing its international presence amid strength in those markets. For example, the Vancouver-Bangkok route is moving to a year-round schedule from its current seasonal schedule. Other new routes in 2026 will include direct flights to Shanghai and Budapest, as well as increased service in Prague. With this, the company is building stronger connections to European and Asian destinations. The goal is to open up new markets and growth avenues.
Clearly, Air Canada is attempting to position itself as an international airliner of choice.
Cost pressures in a capital-intensive business
While these routes and network expansions are exciting, the airline business is a very capital-intensive one. And these days, cost escalation has hit Air Canada. Also, it’s a cyclical business with intense competition on international routes. With many airliners competing for the same markets, there is no guarantee that Air Canada’s international push will be successful.
Back to the cost pressures that Air Canada is experiencing. 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 is rising fast. In its latest quarter, Air Canada’s adjusted CASM increased 15% to 14 cents.
In 2026, the cost pressures will continue, as Air Canada will see a step change in its unionized labour costs. This step change will reflect the new wage terms reached in the 2025 agreements as well as enhancements to ground pay and benefits. Other cost pressures include airport fees and possibly jet fuel, depending on your outlook on oil prices.
Air Canada’s “cheap” valuation
Looking at Air Canada’s valuation, we can see that a lot of these risks are probably priced into the stock. Investors are aware that the airline business is notorious for its high capital cost, cyclicality, and therefore, tendency to get into big trouble when things don’t go well.
At first glance, it seems that Air Canada’s stock is currently trading at a very low nine times next year’s expected earnings. But let’s look at Air Canada’s recent earnings results. In the last two quarters, earnings came in below expectations – by a lot. This can be a sign that expectations are too bullish and that Air Canada’s forward valuation is therefore not really reflecting reality. If the denominator in the valuation calculation, that is the earnings estimate, is too high, then the nine times multiple is misleading. Air Canada’s stock trades at 16 times this year’s expected earnings, which I think is fair.
The bottom line
In my view, Air Canada stock presents too much risk. While it could still be a good short-term trade, I think the easy money has been made. I would therefore focus on other stocks to buy that offer a more compelling investment thesis.
