Air Canada, Canada’s largest airline, is navigating a turbulent financial landscape as it reported a significant quarterly loss while simultaneously seeing a surge in its stock price. On May 9, 2025, the airline announced a first-quarter operating loss of C$108 million, a stark contrast to the modest operating income of C$11 million from the same period last year. This downturn comes despite stable operating revenues of nearly C$5.2 billion, reflecting a slight dip of 1% year-over-year.
CEO Mike Rousseau emphasized that the airline is experiencing a "low teens" percentage decline in bookings for U.S. trips, attributing this to ongoing trade tensions and a weaker Canadian dollar. "Uncertainty was for sure the main theme during the first quarter," Rousseau stated during the earnings call. The decline in U.S.-bound bookings mirrors an industry-wide drop of approximately 10%, affecting overall performance.
The first quarter also saw Air Canada report an adjusted EBITDA of C$387 million, down from C$453 million a year earlier. This decline prompted the airline to revise its full-year EBITDA forecast to between C$3.2 billion and C$3.6 billion, a decrease from the previous range of C$3.4 billion to C$3.8 billion. "Our revenue diversification strategy remains sound; sixth freedom revenues grew, and Air Canada Cargo and Air Canada Vacations delivered solid results in the period," Rousseau noted.
Despite the financial setbacks, investor confidence surged, with Air Canada shares climbing over 14% to C$17.44 on the Toronto Stock Exchange following the earnings report. This spike was fueled by the announcement of a substantial issuer bid to repurchase and cancel up to C$500 million in shares, a move aimed at returning value to shareholders. The airline’s stock had previously lost about 29.8% since the beginning of the year, contrasting with the S&P 500's decline of just 4.3%.
Air Canada’s operating expenses rose by 2% to C$5.30 billion, driven by higher depreciation and increased ground package costs, alongside an unfavorable foreign exchange variance. However, lower jet fuel prices partially offset these pressures. The adjusted cost per available seat mile (CASM) increased by 3.5% to 15.27 cents, reflecting the rising operational costs.
In light of these challenges, Air Canada is cautiously optimistic about its future. The airline plans to increase its available seat mile (ASM) capacity by 1% to 3% for 2025, a modest growth strategy amid market fluctuations. Rousseau expressed confidence in the airline's ability to manage through this turbulent period, highlighting improvements in on-time performance and customer satisfaction.
Industry analysts have noted that Air Canada’s challenges are reflective of broader trends in the aviation sector, where airlines are adjusting to shifting travel habits and economic pressures. The company’s recent performance has sparked interest among investors, with analysts maintaining a Moderate Buy consensus rating on its stock. The average price target of C$20.87 per share suggests a potential upside of 19.8% from current levels.
Moreover, Air Canada is exploring new opportunities, such as the introduction of the Airbus A321XLR into its fleet. Reports indicate that the airline plans to deploy this aircraft on routes without initially informing passengers, a strategy aimed at enhancing operational flexibility.
In the face of economic uncertainty, including a rise in Canada’s unemployment rate to 6.9%, the airline industry remains under pressure. Air Canada’s ability to adapt and innovate in this environment will be crucial to its recovery and long-term success.
Overall, while Air Canada faces significant hurdles, including rising costs and fluctuating demand, its strategic initiatives and investor confidence indicate a path toward stabilization. The upcoming months will be critical as the airline navigates these challenges while striving to enhance its operational performance and shareholder value.
