Over the years, cramped seats, fuel costs, and labour headlines have dominated the narrative for Air Canada (TSX: AC) stock. However, the company has generated record revenue in Q2 and reduced its share count by more than a fifth. It also has one of the strongest balance sheets in the aviation sector.
Valued at a market cap of $7.7 billion, Air Canada stock is still down almost 50% from all-time highs, allowing you to buy the dip.
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The bull case for Air Canada stock
Air Canada runs domestic, transborder, and international routes under the Air Canada, Air Canada Rouge, and Air Canada Express brands, with a fleet of more than 350 aircraft as of late 2025. Beyond flying, Air Canada owns Air Canada Vacations, a growing cargo business, and Aeroplan, its loyalty program.
In its second quarter of 2026, Air Canada posted adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $719 million, landing at the upper end of its own guidance despite elevated fuel prices.
Air Canada reported operating revenue of $6.3 billion, up 11% year over year. Passenger sales rose to $5.6 billion, driven by an 11% increase in PRASM (Passenger revenue per available seat mile). PRASM measures how much revenue each seat mile generates.
The airline also posted an industry-leading system-wide load factor of 87.5%, meaning almost nine out of every ten seats were filled. Premium and corporate travel led the way, growing 11% and 19% respectively.
CEO Michael Rousseau summed up the quarter this way on the call: “The quarter demonstrated the resilience of Air Canada’s diversified business model.”
The Aeroplan deal could change how investors view this TSX stock
The headline that should have grabbed more attention came a day before earnings. Air Canada sold a 25% minority stake in Aeroplan for $2.5 billion, valuing the loyalty program at $10 billion, or about 21 times trailing EBITDA.
Air Canada keeps full control over how the program is run, and members will not see any change to how points are earned or redeemed. What changes is the balance sheet.
Proceeds will retire a $1.2 billion U.S. dollar debt maturity due in August 2026, immediately significantly improving leverage. Air Canada also plans a share buyback of up to $800 million, which should boost investor confidence.
CFO John Di Bert put the bigger picture in perspective during the call, noting the company is “exactly where we wanted to be” against the plan laid out back in December 2024, and in some respects ahead of it.
Air Canada ended the quarter with $8.9 billion in total liquidity, equal to 38% of trailing 12-month revenue. It is well above the company’s long-term target range of 15–20%.
Net leverage sits at 1.7 times, among the lowest of any major North American carrier. Since November 2024, the company has bought back $1.6 billion worth of stock, cutting its outstanding share count by 22% to 280 million units.
Looking at the company’s financial statements, total shareholders’ equity has climbed from negative territory in 2022 to $2.7 billion on a trailing basis, while total debt has steadily declined from its pandemic peak.
Consolidated net income over the trailing 12 months came in at $430 million, even after absorbing $388 million in one-time charges tied to pension and legal items this quarter.
None of that fits the usual airline stock narrative of thin margins and constant cash burn.
Is Air Canada stock undervalued?
Airlines rarely get the benefit of the doubt from investors, and Air Canada is no exception. But this quarter’s numbers tell a story of a company quietly derisking itself while growing revenue at a double-digit pace.
Analysts tracking Air Canada stock forecast free cash flow to improve from $485 million in 2026 to $1.7 billion in 2030. If the TSX stock is priced at 10 times forward FCF, it could more than double within the next 40 months.
