Air Canada (TSX:AC) has been through a lot in the last few years. The pandemic was the biggest blow, but today, the airliner continues to have to fend off different challenges. As a result, Air Canada’s stock price remains below $20.
What should investors do with Air Canada stock? Is the recent drop in Air Canada’s (AC) stock price a good opportunity to buy? Please read on as I explore these questions.
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Air Canada faces major headwinds
Air Canada is facing mounting difficulties. The Iran war, which began on February 28, has affected Air Canada in more ways than one. Flights to and from the Middle East are heavily impacted. Also, the sharp rise in oil prices has affected Air Canada’s single most important cost of doing business — jet fuel.
The price of oil is trading at just under $100 at this time. This is a sharp rise from prices of below $60 at the beginning of the year. While Air Canada has stated that 17% of its 2026 jet fuel purchases are hedged at 69 cents, this is a big problem for the airliner. In March of 2026, jet fuel prices had soared to $1.37 per litre. Jet fuel accounts for almost 25% of Air Canada’s operating expenses.
In addition to this, labour costs have also been rising. This is not a new concern but it’s one that lingers. Air Canada’s cost structure is rising. This means that is cost per available seat mile, or CASM, is facing further pressures. In Air Canada’s latest quarter, its adjusted CASM came in at 15.34 cents, 2% higher than the prior year.
Management’s guidance for CASM in 2026 is between 15.05 and 15.35 cents. This guidance was before the sharp rise in oil prices and the trend was already up.
Recent results show strength
Air Canada’s latest quarterly result showed strength in demand, as travel plans seemed to be un affected by economic uncertainties. In fact, Air Canada’s fourth-quarter performance showed record performance that was backed by a very strong demand environment. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $867 million in the quarter. This equated to a very strong 15% margin and it was accompanied by a strong operating cash flow result of $423 million.
At this time, it appears that Air Canada’s current challenges will continue to override the solid business strategy that the airliner has been implementing. In the long run, Air Canada’s cost cutting strategy (which has already yielded $150 million in annual cost savings), its network enhancements and fleet upgrades will increase the airliner’s value. For example, Air Canada recently purchased eight Airbus A350-1000, a large widebody aircraft that has 40% more area for premium-category seating. The premium category is the fastest-growing revenue category.
Looking ahead, Air Canada’s strategy is being adjusted once again to account for the geopolitical conflict. The airliner has done a great job in increasing its flexibility over the last few years and this is serving it well now. Air Canada’s vast scale, strong international network, and revenue diversity will likely allow it to make necessary adjustments to whether that storm as well as it can.
However, the airliner’s response to rising oil prices has been to increase ticket prices. This places Air Canada’s robust demand situation at risk.
The bottom line
AC’s stock price remains below $20 and continues to trend lower. The US/Iran conflict has placed an additional strain on Air Canada’s business. Although the airliner has been doing all the right things to combat the different headwinds it has faced, I think that there’s too much risk in Air Canada stock today. I would watch the situation and look to buy if and when the stock falls lower. At some point, this will be too cheap to ignore.
