Air Canada (TSX: AC) stock has been punished in recent weeks, and it’s not hard to see why. A wave of selling has hit airline stocks globally, triggered by airspace closures in the Middle East that forced carriers to cancel thousands of flights.
The bearish investor sentiment is easy to understand, given that higher fuel costs and weaker international demand are a brutal combination for airlines.
Valued at a market cap of almost $5 billion, Air Canada stock is down 16% in the past month. In the last five years, the TSX stock has fallen by over 40%, significantly underperforming the broader markets.
Can Air Canada stock recover over the next 12 months?
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Air Canada delivered record Q4 results
Air Canada wrapped up one of the strongest quarters in its history. In Q4, it reported revenue of $5.8 billion, up 7% year over year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose to $867 million in Q4, up from $171 million in the year-ago period.
Moreover:
- The load factor hit an all-time Q4 high of 85%.
- Premium revenues outpaced the economy by three percentage points
- Cargo revenues crossed $1 billion for the full year for the first time since 2022.
- Air Canada earned $22.4 billion in total revenue in 2025. Last year, it reported operating cash flow of $3.7 billion and free cash flow of $747 million.
- Total liquidity stood at $7.5 billion at year-end, with a net leverage ratio of just 1.7 times, well within management’s stated target of under two times.
Air Canada’s own management called 2026 a “transitional year,” and investors should take that seriously.
The airline is in the middle of its most significant fleet renewal cycle in years. It expects to take delivery of 35 new aircraft in 2026, including its first Airbus A321XLR and Boeing 787-10 jets. Most of those deliveries are back-half-loaded, meaning revenue benefits won’t fully show up until late in the year or into 2027.
At the same time, adjusted cost per available seat mile (CASM) is expected to rise, guided at $0.1505 to $0.1535 for 2026. That’s being driven by the final wave of 10-year labour contract renewals and higher depreciation tied to fleet investment.
The long-term bull case for Air Canada stock
Air Canada has the largest transoceanic hub in Toronto (second largest in North America by seats), the fifth-largest transatlantic hub in Montreal, and the second-largest transpacific hub in Vancouver. Its Sixth Freedom business, which connects Europe to Latin America through Canadian hubs, grew revenue by 10% in 2025 and is expected to continue scaling.
Aeroplan, Air Canada’s loyalty program, surpassed 10 million active members in 2025. That’s more than double the roughly four million it had when Air Canada brought the program back in-house.
The newly ordered Airbus A350-1000s, with deliveries starting in 2030, will open new long-haul markets like the Indian subcontinent, Southeast Asia, and Australia, all high-growth corridors.
Air Canada’s 2030 targets include revenues above $30 billion, adjusted EBITDA margins of 18% to 20%, and a free cash flow margin of around 5%.
If Air Canada reports revenue of $30 billion and free cash flow of $1.5 billion in 2030, it could be valued at $15 billion by market cap at 10 times forward FCF. Over the next four years, the TSX stock could more than triple from current levels.
The Foolish takeaway
The ongoing sell-off in Air Canada stock looks more like a macro overreaction than a fundamental breakdown. Air Canada is a stronger, better-run airline than it was three years ago, with a leaner balance sheet, a growing loyalty business, and a clear fleet strategy.
Short-term headwinds are real: the 2026 cost cycle, delayed fleet capacity, and geopolitical uncertainty in global travel. But investors who can look past 2026 to the margin expansion story in 2027 and 2028 may find this a compelling entry point.
