Are Air Canada shares a good buy today?
Air Canada’s growth strategy
On the one hand, Air Canada is embarking on a growth plan that looks quite interesting. By focusing on strong areas such as Atlantic Ocean and sunshine destinations, Air Canada is looking to find growth.
In addition, Air Canada has increased its international presence despite its strong position in those markets. For example, the Vancouver-Bangkok route will transition from its current seasonal schedule to a year-round schedule. Other new routes in 2026 include direct flights to Shanghai and Budapest, as well as increased service in Prague. With this, the company is building stronger connections with European and Asian destinations. The goal is to open new markets and growth opportunities.
It is clear that Air Canada is trying to position itself as an international passenger aircraft par excellence.
Cost pressure in a capital-intensive business
While these routes and network expansions are exciting, the aviation sector is very capital intensive. And today, cost escalation has hit Air Canada. Moreover, it is a cyclical business with stiff competition on international routes. With many airlines competing for the same markets, there is no guarantee that Air Canada’s international expansion will be successful.
Back to the cost pressures facing Air Canada. Air Canada’s cost per available seat mile, or CASM, a key metric the airline industry tracks to assess the company’s operational efficiency, is rising rapidly. In the latest quarter, Air Canada’s adjusted CASM rose 15% to 14 cents.
In 2026, cost pressures will continue as Air Canada will see a step change in unionized labor costs. This step change will reflect the new wage conditions reached in the 2025 agreements, as well as improvements to basic wages and benefits. Other cost pressures include airport fees and possibly jet fuel, depending on your view of oil prices.
Air Canada’s “cheap” rating
Looking at Air Canada’s valuation, we can see that many of these risks are likely priced into the stock. Investors are aware that the airline industry is notorious for its high cost of capital and cyclicality, and therefore tends to get into big trouble when things don’t go well.
At first glance, it looks like Air Canada stock is currently trading at nine times next year’s expected earnings. But let’s take a look at Air Canada’s recent earnings results. In the past two quarters, profits have been well below expectations. This could be a sign that expectations are too optimistic and therefore Air Canada’s future valuation does not really reflect reality. If the denominator in the valuation calculation, i.e. the profit forecast, is too high, then the ninefold multiple is misleading. Air Canada shares are trading at 16 times this year’s expected earnings, which I think is reasonable.
The bottom line
In my opinion, Air Canada stock carries 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 buying other stocks that offer a more compelling investment thesis.
#Air #Canada #Stock #Good #Buy