Air Canada (TSX:AC) stock has had quite the ride. It once traded at all-time highs when investors were dreaming big about travel demand, but airlines are never that simple for long, with shares now down 66% from that time. Costs rise, labour issues pop up, and the market gets moody fast.
That is why a stock can fall hard even when the business is still very much alive. In Air Canada’s case, the pullback has made it look a lot more interesting for patient investors who want a cheap Canadian stock with room to recover.
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AC
Air Canada stock is still the country’s dominant airline, with passenger service across Canada, the U.S., and international markets, plus Air Canada Cargo, Aeroplan, and vacation operations. That matters because this is not just a bet on one type of traveller. It has several moving parts, and that gives it more ways to earn when travel demand is healthy.
Over the last year, the story has been about leaning harder into international and premium travel. In January, Air Canada said it would expand winter routes to Europe and Latin America, including new Quito service and more flying to places like Copenhagen and Manchester. In February, overseas corporate travel demand had surged nearly 30%, helped by stronger demand to Europe and the Pacific as Canadian travel patterns shifted. That is a useful reminder that this is no longer just a domestic airline story.
There have been a few bumps, too. Labour costs remain a pressure point, as an arbitrator upheld a wage agreement with flight attendants after last year’s disruption. Air Canada is also modernizing its fleet, with Rouge shifting toward an all-Boeing 737 MAX fleet by the end of 2026 and the parent airline ordering new Airbus A350-1000 jets for long-haul growth and fuel efficiency. So yes, this is a business still spending and adjusting, not one sitting still.
Into earnings
The earnings picture looks much better than the stock might suggest. Air Canada reported record 2025 operating revenue of $22.4 billion, operating income of $918 million, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.1 billion. It also generated $3.7 billion in operating cash flow and $747 million in free cash flow during the year, while buying back more than $850 million of its own shares. Those are not perfect numbers, but they are strong enough to show the business is still producing real cash.
The fourth quarter was especially encouraging. Q4 net income came in at $296 million, compared with a loss of $644 million a year earlier, while quarterly revenue rose to $5.77 billion from $5.4 billion. That rebound matters because it suggests the company is handling a tougher environment better than many investors might have expected. It also helps explain why management sounded pretty upbeat about 2026.
Valuation is where the case starts to get more interesting. Air Canada stock still looks fairly modest compared with the size of its revenue base and improving profitability. The risk, of course, is that airlines never get a free pass. Fuel, labour, aircraft delivery delays, and economic slowdowns can all hit results. Still, Air Canada expects 2026 adjusted EBITDA of $3.35 billion to $3.75 billion, above or in line with analyst expectations, and plans to grow capacity by 3.5% to 5.5%. For a stock this beaten down, that gives investors a pretty decent setup.
Foolish takeaway
Air Canada stock is not a sleepy stock, and it will never be the easiest name to own. But it is cheap, it is improving, and it still has a leading position in Canadian travel. For investors willing to handle a little turbulence, this looks like one cheap Canadian stock worth buying and holding.
