Air Canada's Post-Strike Rebuilding: Navigating Labor Challenges to Restore Value

Air Canada's recent labor strike, which erupted in early August 2025, exposed both the vulnerabilities and resilience of the airline industry's largest Canadian carrier. The four-day work stoppage by flight attendants under the Canadian Union of Public Employees (CUPE) caused $280–315 million in losses, stranded 500,000 passengers, and suspended 97% of the airline's flights. Yet, beneath the chaos lies a story of strategic recalibration. This article examines Air Canada's post-strike recovery, its financial resilience, and the steps it must take to rebuild stakeholder trust while positioning itself for long-term value creation in a volatile sector.

Financial Resilience: A Test of Liquidity and Discipline

Before the strike, Air Canada's Q2 2025 results painted a picture of strength. Operating revenues hit $5.632 billion, with an operating margin of 7.4% and adjusted EBITDA of $909 million. Free cash flow of $183 million and a leverage ratio of 1.4 (net debt to EBITDA) underscored its robust balance sheet. However, the strike disrupted these metrics, forcing the airline to suspend its full-year guidance and face daily EBITDA losses of up to $25 million. Analysts like Cameron Doerksen of National Bank noted that these losses were 2.8 times higher than during the pandemic's early days, a stark reminder of the fixed-cost structure in modern aviation.

Despite the blow, Air Canada's pre-strike liquidity cushion—bolstered by low-interest pandemic-era debt and a $183 million free cash flow—allowed it to avoid drastic measures like asset sales or equity dilution. The airline's ability to repay $500 million in convertible notes in July 2025 and maintain a leverage ratio of 1.4 (unchanged from 2024) highlights its financial discipline. However, the strike's aftermath has raised red flags for credit rating agencies. Fitch has warned of potential downgrades if Air Canada fails to stabilize its liquidity or absorb rising labor costs, which now account for 1.2% of its EBITDA annually.

Stakeholder Trust: Rebuilding After a Crisis

The strike's operational fallout—cancelling 700 flights daily and grounding 130,000 passengers—tested Air Canada's reputation. Yet, the airline's “phased wind-down” strategy, which prioritized customer rebooking and minimized chaos, earned praise for crisis management. CEO Michael Rousseau's emphasis on “operational excellence” during the Skytrax World Airline Awards (where Air Canada was named Best Airline in North America) signaled a commitment to quality, even amid turmoil.

However, restoring trust with unions and investors requires more than operational fixes. The tentative agreement with CUPE—a 40% wage increase over four years—addresses immediate labor demands but raises questions about long-term cost sustainability. While U.S. peers like Delta and Alaska Airlines have preemptively integrated ground-duty compensation into contracts, Air Canada's reactive approach has left it playing catch-up. Investors must weigh whether the airline's 1.2% EBITDA margin erosion from this agreement is a manageable cost of doing business or a harbinger of future disputes.

Strategic Rebuilding: Balancing Growth and Stability

Air Canada's long-term vision—$30 billion in operating revenues by 2028 and an adjusted EBITDA margin of 18–20% by 2030—remains ambitious. Yet, the strike underscores the need for a dual strategy: scaling premium services while fortifying labor relations. The airline's focus on high-demand markets (e.g., transatlantic routes and Air Canada Vacations) and its 3.25–3.75% ASM capacity increase for Q3 2025 demonstrate growth intent. However, without addressing systemic labor tensions, these gains could be short-lived.

A critical step is aligning with U.S. carriers' proactive labor practices. For instance, Delta's 16.1% EBITDA margin in Q2 2025 reflects its ability to balance wage increases with operational efficiency. Air Canada's current leverage ratio of 1.4, while lower than Delta's 2.8, masks its vulnerability to prolonged disruptions. To close this gap, the airline must prioritize:
1. Cost Controls: Leveraging lower-than-expected fuel prices ($0.85 per litre vs. $0.90 projected) to offset labor costs.
2. Debt Management: Maintaining its $500 million share buyback program to bolster shareholder value.
3. Union Engagement: Establishing a framework for regular wage negotiations to avoid future strikes.

Investment Implications: A Cautious Bull Case

Air Canada's post-strike recovery offers a mixed outlook. On the positive side, its strong EBITDA margins, low leverage, and undervaluation (trading at 4.7 times earnings) suggest potential for a rebound. The airline's 23.8% CAGR in the Canadian aviation sector through 2025 also supports growth. However, risks persist:
- Labor Costs: A 1.2% EBITDA margin hit from the CUPE agreement could strain profitability.
- Credit Risk: Fitch's downgrade warning looms if liquidity tightens further.
- Market Competition: U.S. carriers with stronger liquidity (e.g., Delta's $3.1 leverage ratio) may outperform.

For investors, the key is to monitor Air Canada's ability to execute its strategic priorities. A “Moderate Buy” rating is justified if the airline:
1. Ratifies the CUPE agreement without further disruptions.
2. Maintains its free cash flow breakeven target for 2025.
3. Accelerates premium revenue growth (up 5% in Q2 2025).

Conclusion: A Path Forward

Air Canada's post-strike recovery is a test of its resilience and adaptability. While the airline has demonstrated operational agility and financial discipline, its long-term success hinges on resolving labor tensions and aligning with industry best practices. For investors, the path to value creation lies in a balanced approach—capitalizing on growth opportunities while mitigating the risks of a sector increasingly defined by labor as a strategic asset. As the airline navigates this crossroads, its ability to rebuild trust and maintain financial flexibility will determine whether it emerges as a leader or a laggard in the post-pandemic aviation landscape.