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American Airlines (AAL) Hurt by Low Travel Demand & High Debt

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We recently issued an updated report on American Airlines Group Inc. (AAL - Free Report) .

Sharp drop in air-travel demand is hurting passenger revenues, which contribute majorly to the top line. The carrier incurred a loss in each of the first three quarters of 2020, mainly due to the 64.2% drop in passenger revenues in the first nine months of 2020.

Long-haul international capacity is estimated to be down nearly 75% in the final quarter of 2020. Moreover, with the spike in coronavirus cases in the United States, the company witnessed further softness in demand.

The company’s total debt-to-total capital ratio stood at 1.2 at the end of the third quarter, higher than its reading of 1.11 at the end of the June quarter. This implies that a company is highly leveraged with more risk of insolvency.

Nevertheless, low fuel prices are helping American Airlines partly offset the adversities. Evidently, average fuel cost per gallon (on a consolidated basis: including taxes) declined 25.4% to $1.55 in the first nine months of 2020. With major part of the fleet remaining grounded/under-utilized, fuel gallons consumed declined 49% in the first nine months of 2020, thereby driving the bottom line.

Zacks Rank & Stocks to Consider

American Airlines currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , FedEx Corporation (FDX - Free Report) and Herc Holdings Inc. (HRI - Free Report) . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, FedEx and Herc Holdings is pegged at 15%, 12% and 12.6%, respectively.

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