Air Canada (TSX:AC) has confronted large challenges over the previous couple of years. It began with the pandemic, which shut down all the things. Then, we had rising prices, inflation, and eventually the present struggles with tariffs popping out of the USA. This has stored Air Canada’s inventory buying and selling beneath $20 throughout many of the final 5 years, in comparison with its prior highs of greater than $50 again in 2019.

Earlier this 12 months, Air Canada’s inventory sank to underneath $14, which was a stage not seen for the reason that early days of the pandemic. At the moment, I wrote about how I believed it was approach too low-cost to disregard. Whereas some inventory worth weak spot was definitely justified, it could have fallen too far. Therefore, the inventory is up 44% since its low of April 2025.

Is that this an indication of a sustained restoration to return, or is Air Canada inventory nonetheless going through too many headwinds?

Air Canada posts lower-than-expected outcomes

Within the airliner’s newest quarter (Q2/2025), earnings per share (EPS) got here in at $0.60. This compares to EPS of $0.98 in the identical quarter final 12 months and anticipated EPS of $0.75. So, as we are able to see, the end result was considerably beneath each final 12 months’s outcomes and expectations. That is clearly not a very good factor.

This end result was pushed by each top-line and bottom-line pressures. On the highest line, income was hit by financial and geopolitical uncertainty and lowered demand for journey to the USA. On the underside line, earnings have been hit by elevated labour prices in addition to airport and upkeep charges. For instance, labour bills elevated 16% versus final 12 months.

All of this confirmed up in Air Canada’s value per out there seat mile, or CASM, which is a key metric that the airline business tracks in an effort to assess the operational effectivity of the enterprise. Air Canada’s adjusted CASM for the quarter was, in reality, up 6.4% to 14.4 cents.

What’s subsequent?

Air Canada has been working to reinforce its community protection, make changes to hub airport schedules, and enhance income by means of fare enhancements. Whereas passenger income solely elevated by 1%, sure segments are doing fairly effectively. For instance, transatlantic journey is seeing a whole lot of demand. Additionally, Air Canada’s premium journey product is seeing robust demand. The airliner will proceed to put money into these areas in an effort to construct momentum in demand and income.

Equally, whereas we are able to anticipate value pressures to proceed, the airliner is taking steps to navigate its approach by means of this. For instance, Air Canada has put a $150 million value discount program in place. To this point, the corporate is making good progress in its aim to scale back unit prices. This can reduce the influence of value pressures, however regardless of these efforts, we must always nonetheless anticipate CASM to return in on the higher finish of the corporate’s steerage of 14.25 cents to 14.5 cents.

The underside line, although, is that labour prices will proceed to be difficult within the coming quarters and years. Each pilot and flight attendant salaries have been elevated, and the upward stress stays. Air Canada is working time beyond regulation to attempt to mitigate the results of this.

Is Air Canada inventory nonetheless low-cost?

Air Canada inventory is at present buying and selling at 13 occasions this 12 months’s estimated earnings and 7 occasions subsequent 12 months’s estimated earnings. So, the inventory does seem cheap. Nonetheless, with so many uncertainties to each the top- and bottom-line numbers, I query whether or not that is low-cost sufficient, as there’s doubtless draw back danger to Air Canada’s earnings estimates, for my part.

The airliner is scheduled to report its third-quarter leads to late October.