Air Canada (TSX:AC) stock has been taking a beating this year. Down 13.8% year to date, it has underperformed the broader TSX Composite Index. Although Air Canada’s recent earnings have been pretty good, investors have been concerned about certain factors that could negatively impact the company in the future, including a possible flight attendant strike, Donald Trump’s tariffs, and an upcoming increase in expenses. In this article, I will explore the three things that matter for Air Canada and its shareholders in 2025.
The strike
Probably the biggest thing weighing on Air Canada’s stock right now is possible strike action by the company’s flight attendants.
Earlier this month, AC’s flight attendants union (a part of CUPE) voted to authorize a strike, meaning that they will go on strike if their bargaining team decides to do so and if a deal isn’t reached before August 16. With just four days to go before the possible strike, Canadians are getting jittery about their summer travel plans, and Air Canada investors are apparently getting jittery too.
Should investors worry?
Here’s what we know:
Air Canada’s offer to the union was a 32.5% increase in wages. If approved, the deal will increase part of Air Canada’s operating costs. On the other hand, if the company signs a long-term contract with the union, it could prevent a lengthier, more drawn out battle consisting of many on-and-off strikes over the years. The certainty of having a long-term contract could be a positive for the company, even if it slightly increases operating costs. So basically, AC investors should hope that the company and the union reach a deal promptly.
Tariffs
The second big thing that matters for Air Canada right now is Donald Trump’s tariff policy. Trump recently upped the tariff on Canadian goods to 35%, which translates to a lesser amount after factoring in the many exemptions (e.g., CUSMA-compliant goods). The tariffs themselves don’t directly impact Air Canada: the company does not export goods. However, when Trump announces new tariffs, the news tends to make Canadians upset, leading to them boycotting U.S. vacations and cancelling other U.S. travel plans. This impacts Air Canada’s Canada-U.S. flight volume. In the second quarter, said volume declined–although revenue increased because AC made up for the decline with non-U.S. destinations. The Trump Tariff threat isn’t the biggest risk to Air Canada’s fundamentals, but it is likely to have a short term impact on the stock price if tensions continue.
Capital expenditure (CAPEX) costs
The third thing that matters for Air Canada right now is CAPEX costs. Air Canada is spending many billions – up to $6 billion per year – on new airplanes and other physical assets over the next two years. The company says that its free cash flow will mostly just break even in the near term because of these expenses. Airplanes have long useful lives, so Air Canada should get over its current CAPEX cycle and move to higher cash flow “profitability” soon enough. But investors tend to be impatient with this kind of thing.
Foolish takeaway
So there you have it, the three things that matter for Air Canada in 2025. Between strike threats, tariff hikes and CAPEX spending, it’s a tumultuous time. But through it all, Air Canada’s fundamentals continue improving. At 0.29 times sales, AC stock might just be a bargain.
