Air Canada: Buy, Sell, or Hold in February?

Can Air Canada stock thrive despite macro economic and political pressures and their negative impact on costs and revenues?

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published February 10, 4:40 pm EST

Prior to the pandemic, Air Canada (TSX:AC) was reaching for the skies. Its story was one of improving efficiencies, cash flows, and profitability against a backdrop of low oil prices and strong demand.

Today, Air Canada’s stock price trades at a fraction of pre-pandemic levels and the airliner faces a whole set of headwinds. Can Air Canada’s stock rise to its pre-pandemic levels in the face of macroeconomic uncertainty, political risk, and rising costs?

Let’s explore.

A airplane sits on a runway. — Source: Getty Images

Air Canada: Labour tension

In September 2025, more than 99% of flight attendants voted to reject Air Canada’s final wage offer. This means that today, the Canadian Union of Public Employees (CUPE) is attempting to reach a settlement with Air Canada through arbitration.

Adding to this labour pressure, Unifor, which is the union representing Air Canada’s airport and customer service employees, has recently entered contract negotiations. These employees are also an important part of the whole Air Canada operation. As such, the outcome of these negotiations is very relevant.

All of this means that the upward pressure on the airliner’s labour costs remains. This is obviously a good thing for employees, as the cost of living has risen so significantly in recent years. But clearly, this is not a good thing for the airliner’s bottom line.

Air Canada’s Cuba flights – cancelled

In another blow, Air Canada has recently suspended flights to Cuba amid a fuel crisis. This is the result of a shortage of aviation fuel on the island of Cuba. In fact, it is anticipated that any day now, jet fuel will not be commercially available on the island’s airports – a problem created by a U.S. blockade of oil preventing Cuba from importing or exporting petroleum products.

While the airliner has committed to sending empty flights to bring those stranded in Cuba home, this is not good for the airline industry. As yet another example of the mounting risks and dangers present in the world today, suspensions like this will surely deter consumers from airline travel.

The bottom line here is that Air Canada’s Cuba flights are cancelled with no indication of when things will return to normal. But we can guess that this conflict with the U.S. and, therefore, Cuba’s fuel crisis will not be solved overnight. It adds yet another country that’s crossed off as a possible destination for air travel in a world that seems to be getting smaller and smaller.

Latest quarterly results

In the airliner’s latest quarterly results, the signs of mounting costs and risks were already showing. Air Canada’s third quarter was negatively impacted by labour disruptions, rising costs, and soft U.S. travel demand. While the airliner’s attempts to compensate for all of this have been strategically sound, they are fighting an uphill battle, in my view.

For example, Air Canada’s cost per available seat mile, or CASM, is rising. CASM is a key metric that the airline industry tracks in order to assess the operational efficiency of the business. In its latest quarter, Air Canada’s adjusted CASM increased 15% to 14 cents. That’s a big increase.

Looking ahead, we can expect these cost pressures to continue into 2026. For example, Air Canada will see a step change in its unionized labour costs. This step change will reflect the new wage terms reached through arbitration with CUPE, as well as enhancements to ground pay and benefits. In addition to this, there are the labour cost pressures from airport workers and airport fees. Finally, possible increases in jet fuel expense pose a risk, depending on your outlook for oil prices. All these risks will take their toll.

The bottom line here is that the airliner faces many headwinds – and the pressures are mounting.

Valuation

So, while it’s tempting to conclude that Air Canada’s stock price is undervalued, I have to say that I don’t think it is. Yes, the stock is trading at less than 10 times expected 2026 earnings. But in my view, those earnings estimates are at risk. There are too many indications pointing to downward pressure on revenue as well as upward pressures on the cost side. Together, they translate into the perfect storm for Air Canada, signalling future trouble.