Air Canada (TSX:AC) stock has always been one to watch. And as of late 2024, there’s plenty to unpack for investors considering whether it’s a good buy. The airline has been riding the highs and lows of the post-pandemic travel surge, with recent earnings painting an intriguing picture. But is the future looking brighter? Let’s take a look.
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Into earnings
In its most recent third-quarter results, Air Canada stock reported operating revenue of $6.1 billion. While this was down by about 3.8% compared to the same quarter in 2023, the airline posted a sharp increase in net income. It jumped 63% to reach $2.04 billion. This signals that cost efficiencies and strong demand in certain markets are playing a major role in improving profitability. The profit margin, an indicator of how efficiently a company manages its expenses, also expanded notably, rising to 33% from 20% in the prior year.
The second quarter, however, told a slightly more subdued story. Air Canada stock saw revenue climb modestly to $5.5 billion, up 2% year over year. Yet adjusted net profits fell from $664 million to $369 million. The company attributed this to overcapacity in certain markets, particularly on international routes, where airlines are fiercely competing for travellers.
This dip shows that while travel demand remains robust, pricing pressure continues to weigh on earnings. This is something investors should keep an eye on going forward. Nonetheless, the company remains optimistic about its trajectory. For 2025, Air Canada stock has forecasted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the range of $3.4 billion to $3.8 billion, aligning with analyst expectations. By 2028, the company hopes to reach $30 billion in operating revenue, representing a 36% increase from current levels. Driven by strong demand for leisure and business travel and further network expansions, particularly in the Asia-Pacific region.
Considerations
One bright spot that emerged in late 2024 is Air Canada stock’s revised profit outlook. In November, the company raised its annual EBITDA forecast to about $3.5 billion, citing robust international demand and favourable fuel costs. Alongside this, the airline announced a share-buyback program, its first since the COVID-19 pandemic. This move to repurchase up to 35.78 million shares signals management’s confidence in the company’s recovery and future prospects.
Historically, Air Canada stock performance has been volatile, which is not uncommon for airline stocks. Over the past five years, the stock has faced significant headwinds, with investors seeing a decline of approximately 49% in value. Much of this loss can be traced back to the devastating impact of the pandemic on global air travel, which left the airline industry in survival mode. Air Canada stock has since rebounded in terms of revenue and profitability. Yet, it remains a stock that can swing widely based on macroeconomic conditions, fuel prices, and global travel demand.
Air Canada stock’s financial health also warrants attention. As of the end of September 2024, the company reported a total cash balance of $8.38 billion, a reassuring cushion that provides some stability. However, its total debt stands at $12.37 billion, giving it a debt-to-equity ratio of around 400%. It’s not uncommon for airlines to carry significant debt due to their capital-intensive nature. Yet this level of leverage is something to consider, especially if unexpected disruptions arise. On the upside, Air Canada’s strong operating cash flow of $4.24 billion over the trailing 12 months shows the company’s ability to generate liquidity. This is critical for managing its debt load and future investments.
Bottom line
Air Canada stock is on a promising path. But like any airline stock, it remains a high-risk, high-reward investment. With international travel demand rebounding and the company making notable strides in profitability and efficiency, there’s potential for significant upside. At the same time, its history of volatility, high debt, and exposure to external risks mean it’s not without its caveats. For investors who believe in Air Canada stock’s ability to capitalize on the travel resurgence and execute its growth plans, now could be a reasonable time to take a closer look. As always, doing your homework and ensuring the stock aligns with your risk profile is the best way forward.
