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1. Company Snapshot

1.a. Company Description

Air Canada provides domestic, U.S. transborder, and international airline services.It offers scheduled passenger services under the Air Canada Vacations and Air Canada Rouge brand name in the Canadian market, the Canada-U.S. transborder market, and in the international market to and from Canada, as well as through capacity purchase agreements on other regional carriers.As of December 31, 2021, the company operated a fleet of 175 aircraft under the Air Canada mainline brand name comprising 97 Boeing and Airbus narrow-body aircraft, and 78 Boeing and Airbus wide-body aircraft; 123 aircraft under the Air Canada Express brand name, including 50 Mitsubishi regional jets, 48 De Havilland Dash-8 turboprop aircraft and 25 Embraer 175 aircraft; and 39 aircraft under the Air Canada Rouge brand name consisting of 14 Airbus A321 aircraft, 5 Airbus A320 aircraft, and 20 Airbus A319 aircraft.


It also provides air cargo services in domestic and U.S. transborder routes, as well as on international routes between Canada and markets in Europe, Asia, South America, and Australia.In addition, the company operates, develops, markets, and distributes vacation travel packages in the Caribbean, Mexico, the United States, Europe, Central and South America, South Pacific, Australia, and Asia; offers cruise packages in North America, Europe, and the Caribbean; and provides travel loyalty programs.Air Canada was founded in 1937 and is headquartered in Saint-Laurent, Canada.

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1.b. Last Insights on AC

Air Canada's recent performance was driven by its ability to beat earnings per share expectations in Q1 2025, despite flat revenue. The company's net loss was attributed to higher operating expenses and lower yield. Additionally, Air Canada's completion of a $500 million share buyback program is a positive catalyst, as it reduces the number of outstanding shares and is relative for shareholders. Furthermore, the company's outperform rating and price target raise by National Bank and Stifel Canada, respectively, indicate analysts' confidence in Air Canada's growth prospects. The airline's commitment to balanced long-term capital allocation and its efforts to optimize operations are also contributing factors to its recent performance.

1.c. Company Highlights

2. Air Canada's Q3 2025 Earnings: A Resilient Performance Amidst Labor Disruption

Air Canada reported a solid third-quarter financial and operating performance, despite a 5% decline in operating revenues due to the labor disruption. Adjusted EBITDA was $961 million, down $562 million from the same quarter in 2024. The company's EPS came out at $0.75, significantly beating analyst estimates of $0.2825. The adjusted EBITDA margin was 16.6%, including the $375 million impact from the labor disruption. Revenue performance was impacted by the disruption, with passenger revenues declining 6% from the same period last year.

Publication Date: Nov -08

📋 Highlights
  • Adjusted EBITDA Decline with Labor Impact:: Q3 adjusted EBITDA fell to $961M (-562M YoY), but excluding labor disruptions would align with full-year guidance.
  • Passenger Revenue Drop Amid Unit Recovery:: Passenger revenues declined 6% YoY, though unit revenues improved pre-strike, with disruptions costing ~3% of Q3 unit revenue.
  • Operational Metrics Exceed Targets:: On-time performance and Net Promoter Score surpassed internal benchmarks and 2024 levels despite challenges.
  • Fleet Modernization and Capacity Plans:: 2025 ends with 3 new A220s and 1 737 MAX; 2026 deliveries include 18 A220s, 11 A321XLRs, and 4 737 MAXs for growth.
  • Free Cash Flow and Strategic Investments:: Full-year free cash flow projected at breakeven to $200M, with $1.7B allocated to anti-dilutive NCIB actions and $900M Q4 capex for fleet efficiency.

Operational Metrics and Commercial Foundations

The company's operational metrics, such as on-time performance and Net Promoter Score, exceeded internal targets and last year's levels. Mark Galardo highlighted that the company's commercial foundations are solid, adaptable, and core enablers of strong results. The company estimates that the labor disruption was a drag of about 3 points to Q3 unit revenues.

Financial Guidance and Outlook

The company updated its full-year guidance, expecting capacity to increase around 0.75% versus 2024 and 2025 adjusted CASM in the $0.146 to $0.147 range. For 2026, analysts estimate revenue growth at 7.1%. Air Canada expects adjusted EBITDA to be between $2.95 billion to $3.05 billion in 2025 and free cash flow to be between breakeven and $200 million for the full year.

Valuation and Growth Prospects

With a P/E Ratio of 4.08 and an EV/EBITDA of 5.23, the market appears to have factored in a reasonable growth trajectory for Air Canada. The company's commitment to returning value to shareholders is evident in its renewed NCIB, with a significant deployment of $1.7 billion to anti-dilutive actions. As the company continues to evolve its fleet and expand its network, its focus on cost management and free cash flow generation is expected to drive long-term sustainable value for shareholders.

Future Growth Initiatives

Air Canada is poised for growth, with plans to receive 35 new aircraft in 2026, including the first Airbus 321XLR, which will enable the company to launch new routes and offer year-round services. The company's focus on customer service is also expected to drive growth, with a Net Promoter Score rising by 10 points in the quarter.

3. NewsRoom

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New Agentic Capabilities in AWS Transform Enable Rapid Modernization of Any Code or Application

Dec -01

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Air Canada Valuation in Focus After New International Route Expansion and Recent Price Volatility

Nov -28

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Air Canada (TSX:AC) Expands Summer Routes and Upgrades Cabins—Is Its International Strategy Facing a Turning Point?

Nov -27

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Fly the Flag: Air Canada Unveils Celebratory Canadian Olympic and Paralympic Team Livery Featuring Canadian Athletes Headed to the Milano Cortina 2026 Winter Games

Nov -27

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Over 1,000 Dreams Took Flight in 2025 with the Help of The Air Canada Foundation

Nov -26

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How a 'unique industrial utopia' in Northern Quebec is defying Trump's tariffs

Nov -26

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How a 'unique industrial utopia' in northern Quebec is defying Trump's tariffs

Nov -26

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More Europe, More Travel: Air Canada Further Expands Network to Offer North America’s Second Largest Transatlantic Network by Destinations

Nov -25

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (5.11%)

6. Segments

Premium, Mid. & Eco

Expected Growth: 4.5%

Air Canada's 4.5% growth is driven by Premium's increased business travel demand, Mid's expanded routes and amenities, and Eco's competitive pricing and efficient operations. Premium benefits from corporate travel recovery, Mid from leisure travel growth, and Eco from cost-conscious travelers. These factors contribute to the airline's overall growth, with each segment catering to distinct customer needs and preferences.

Luxury & Lifestyle

Expected Growth: 6.0%

Air Canada's Luxury & Lifestyle segment growth of 6.0% is driven by increasing demand for premium travel experiences, particularly among high-income individuals and business travelers. Key drivers include rising disposable income, growth in international travel, and Air Canada's strategic investments in luxury amenities and services, such as lie-flat beds and gourmet cuisine.

Holding & Intercos

Expected Growth: 3.5%

Air Canada's Holding & Intercos segment growth of 3.5% is driven by increased travel demand, improved yield management, and enhanced customer experience. Additionally, strategic partnerships, cost savings initiatives, and investments in digital transformation have contributed to this growth. Furthermore, the segment has benefited from a strong Canadian economy and favorable currency exchange rates.

7. Detailed Products

Economy Class

Air Canada's economy class offers comfortable seating, in-flight entertainment, and meal services on select flights.

Premium Economy

Air Canada's premium economy offers more legroom, priority check-in, and upgraded meal services.

Business Class

Air Canada's business class offers lie-flat beds, gourmet meals, and personalized service.

Air Canada Vacations

Air Canada Vacations offers packaged travel deals including flights, hotels, and activities.

Aeroplan

Aeroplan is Air Canada's loyalty program, allowing members to earn and redeem points for flights, upgrades, and other rewards.

Cargo Services

Air Canada Cargo offers air freight services for shipping goods and packages.

8. Air Canada's Porter Forces

Forces Ranking

Threat Of Substitutes

Air Canada faces moderate threat from substitutes such as trains, buses, and carpooling services, but these alternatives are not always convenient or cost-effective for long-distance travel.

Bargaining Power Of Customers

Air Canada's customers have significant bargaining power due to the availability of multiple airlines and travel options, allowing them to negotiate prices and demand better services.

Bargaining Power Of Suppliers

Air Canada's suppliers, such as aircraft manufacturers and fuel providers, have limited bargaining power due to the airline's large scale of operations and negotiating power.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry in the airline industry, including significant capital requirements, regulatory hurdles, and established brand recognition.

Intensity Of Rivalry

The airline industry is highly competitive, with multiple players competing for market share, which leads to intense rivalry and pressure to maintain market share and pricing power.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 94.57%
Debt Cost 6.95%
Equity Weight 5.43%
Equity Cost 13.14%
WACC 7.29%
Leverage 1741.46%

11. Quality Control: Air Canada passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Golden Ocean

A-Score: 5.3/10

Value: 6.7

Growth: 3.3

Quality: 5.0

Yield: 10.0

Momentum: 1.0

Volatility: 5.7

1-Year Total Return ->

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Stock-Card
Air Canada

A-Score: 5.1/10

Value: 7.8

Growth: 6.2

Quality: 4.4

Yield: 0.0

Momentum: 5.5

Volatility: 6.7

1-Year Total Return ->

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Worthington Industries

A-Score: 5.0/10

Value: 3.6

Growth: 3.1

Quality: 5.7

Yield: 3.0

Momentum: 8.5

Volatility: 6.0

1-Year Total Return ->

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Stock-Card
Southwest Airlines

A-Score: 4.6/10

Value: 6.4

Growth: 3.0

Quality: 3.8

Yield: 3.0

Momentum: 6.0

Volatility: 5.3

1-Year Total Return ->

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Stock-Card
Alaska Air

A-Score: 4.2/10

Value: 6.5

Growth: 4.7

Quality: 3.4

Yield: 0.0

Momentum: 6.0

Volatility: 4.7

1-Year Total Return ->

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Stock-Card
American Airlines

A-Score: 4.0/10

Value: 7.9

Growth: 4.8

Quality: 3.8

Yield: 0.0

Momentum: 4.0

Volatility: 3.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

18.88$

Current Price

18.88$

Potential

-0.00%

Expected Cash-Flows