After struggling for several years since 2020, Air Canada (TSX:AC) finally seems to be on a path to an incredible comeback in recent months. Over the past three months, the airline's stock has surged by a stunning 58%, reigniting investor interest in Canada's largest passenger airline company. With this, Air Canada stock now trades at $24.69 per share with a market cap of $8.9 billion.

But does this rally signal the start of a long-term resurgence, or is it too late to join the flight? In this article, I'll break down Air Canada stock's recovery story, the key factors behind its recent rally, and whether there is still upside potential in this fundamentally strong stock for long-term investors.

What's behind Air Canada stock's spectacular recovery?

The worst for Air Canada investors seems to be in the rearview mirror as the company continues to benefit from a combination of factors. First, the post-pandemic surging travel demand has played a key role in Air Canada's turnaround story in recent years. To give you a quick idea about that, the Canadian airline safely moved nearly 13 million customers during its peak summer season in 2024 alone. This surge in travel demand has given a gradual boost to its revenues, which reached $6.1 billion in the third quarter of 2024.

Second, Air Canada has shown resilience by addressing operational challenges in recent years, which has led to notably improved efficiency. Despite a 3.8% YoY (year-over-year) drop in operating revenue, the company generated $737 million in cash flow from operating activities in the third quarter, reflecting an improvement of $329 million compared to the same quarter of 2023. This increase highlights the company's ability to manage costs effectively while maintaining its main focus on long-term growth.

Despite global economic uncertainties and volatile fuel prices, Air Canada has managed to remain on the path of a strong financial recovery in the post-pandemic era, which seems to be attracting investors' attention of late.

Is there still an upside for long-term investors?

One of Air Canada's most promising growth strategies right now is its focus on capacity expansion and operational improvement. In the latest quarter, despite global challenges, the airline company boosted its available seat miles by nearly 3% YoY. This measured growth aligns with the steady recovery in travel demand, which could help it capture additional market share in the future.

In addition, Air Canada's recently announced share buyback program reflects management's confidence in the company's future. By repurchasing up to 10% of its public float, the Canadian flag carrier plans to enhance shareholder value while addressing the dilution caused by pandemic-era financing. Similarly, its strong liquidity position of $10.2 billion as of the third quarter gives it enough financial flexibility to invest in more growth initiatives.

Although Air Canada stock has rallied by well over 50% over the last three months, it still remains well below its pre-pandemic year 2019's closing level of $49.51 per share. Given this and its continued focus on growth initiatives, this top Canadian stock still has room to climb further.