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American Airlines Group Inc. (AAL) - free report >>
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American Airlines Group Inc. (AAL) - free report >>
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Here's Why One Should Retain American Airlines (AAL) Now
American Airlines Group Inc. (AAL - Free Report) is benefiting from its strong air-travel demand and debt-reduction efforts.
Factors Favoring AAL
Continued recovery in air-travel demand, particularly on the domestic front, bodes well for American Airlines. Reflecting the boost in air-travel demand, consolidated traffic (measured in revenue passenger miles) rose 8.3% in the first nine months of 2023. To cater to this increased demand, capacity (measured in average seat miles) increased 7% in the same time period.
The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by the end of 2025. AAL aims to attain this objective through naturally occurring amortization. Also, it intends to utilize surplus cash and free cash flow to pay down prepayable debt. As of Sep 30, 2023, the carrier reduced its debt levels by more than $10 billion from peak levels in mid-2021.
Key Risks
American Airlines’ current ratio (a measure of liquidity) at the end of third-quarter 2023 stood at 0.69. A current ratio of less than 1 is not desirable as it implies that the company doesn't have enough liquid assets to cover its short-term liabilities.
Zacks Rank
AAL currently carries Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Air Canada (ACDVF - Free Report) and SkyWest (SKYW - Free Report) .
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a new year-round route between Montreal and Madrid. You can see the complete list of today’s Zacks #1 Rank stocks here.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet-modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.