Air Canada's Resumption of Flights as a Catalyst for Airline Recovery

The resumption of Air Canada's flight operations in August 2025, following a contentious labor dispute with the Canadian Union of Public Employees (CUPE), marks a pivotal moment in the airline's post-pandemic recovery. While the strike disrupted over 500,000 travelers and grounded flights for nearly a week, the airline's disciplined response—coupled with its underlying financial strength—has reinforced investor confidence in its strategic reentry into a rebounding aviation sector. For investors, this episode underscores Air Canada's resilience and its potential to capitalize on a global travel resurgence.

Strategic Reentry: A Phased Approach to Stability

Air Canada's resumption of flights was not a sudden return to normalcy but a carefully orchestrated phased restoration. The airline prioritized international outbound routes first, followed by a gradual ramp-up of North American operations over seven to ten days. This approach minimized chaos for passengers while allowing the company to reposition aircraft and crews efficiently. Such strategic patience is critical in an industry where operational disruptions can erode customer trust and brand equity.

The airline's fleet adjustments for 2025 also reflect a focus on capacity optimization. With plans to increase available seat miles (ASM) by 3.25% to 3.75% in Q3 2025, Air Canada is aligning its fleet with demand trends, particularly in premium markets. This aligns with its broader goal of maintaining an adjusted EBITDA margin of 16.1%—a figure that outperforms many U.S. peers despite rising fuel costs and labor expenses.

Market Sentiment: A Test of Resilience

The August 2025 strike initially rattled investors, sending Air Canada's stock down 14.25% in the month leading up to the labor disruption. However, the airline's swift resolution of the crisis—facilitated by federal arbitration and a mediated agreement with CUPE—spurred a 1.65% rebound in the two weeks following the resumption of flights. This volatility highlights the sector's sensitivity to operational risks but also demonstrates Air Canada's ability to stabilize its operations under pressure.

Analysts have since upgraded their outlook for the airline. A consensus of 12 Wall Street analysts now rates Air Canada as a “Moderate Buy,” with an average price target of C$25.63 (a 32% projected upside from its current price of C$19.40). This optimism is driven by the airline's strong EBITDA margins, disciplined cost controls, and long-term financial targets, including a goal of 18% to 20% adjusted EBITDA margins by 2030.

Financial Fortitude in a Cyclical Sector

Air Canada's Q2 2025 financials underscore its operational discipline. Revenue rose 2% year-over-year to $5.63 billion, with premium revenue growth of 5% reflecting a shift toward high-demand markets. The airline's adjusted EBITDA margin of 16.1% outperformed industry averages, even as it navigated a 12-hour strike and a volatile fuel price environment (C$0.92 per liter).

The airline's capital allocation strategy further bolsters its appeal. A $500 million share buyback in Q2 2025 reduced the total issued shares to 296 million, signaling a commitment to shareholder returns. Additionally, Air Canada's leverage ratio of 1.4—well below its 2028 target of 1.4—positions it to withstand macroeconomic headwinds while maintaining flexibility for growth.

Investment Implications: A Compelling Case for Recovery

For investors, Air Canada's current valuation appears attractive. Trading at a 4.98 price-to-earnings (PE) ratio—well below its 10-year average of 6.85—the stock offers a discount relative to its historical multiples. This undervaluation is supported by the airline's strong balance sheet, strategic fleet adjustments, and a favorable industry backdrop.

The Canadian aviation sector is projected to grow at a 23.8% compound annual growth rate (CAGR) through 2025, driven by surging inbound tourism and pent-up demand for international travel. Air Canada's extensive international network and flag-carrier status position it to capture a disproportionate share of this growth.

However, risks remain. Rising unit costs, labor negotiations, and geopolitical tensions could pressure margins. Yet, Air Canada's proactive approach to labor disputes—evidenced by its swift resolution of the CUPE strike—suggests a management team capable of navigating such challenges.

Conclusion: A Catalyst for Long-Term Growth

Air Canada's resumption of flights in August 2025 was more than a return to normal operations—it was a demonstration of strategic resilience in a volatile sector. By prioritizing operational stability, maintaining strong EBITDA margins, and executing disciplined capital allocation, the airline has positioned itself as a leader in the post-pandemic recovery.

For investors, the current valuation offers an opportunity to participate in a company that has weathered a crisis while maintaining its long-term trajectory. With a projected 32% upside from current levels and a sector poised for growth, Air Canada represents a compelling case for those seeking exposure to the aviation rebound. As the airline continues to stabilize its operations and expand its premium offerings, its strategic reentry may well serve as a catalyst for broader industry recovery.