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Here's Why You Should Retain American Airlines (AAL) Stock Now
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American Airlines (AAL - Free Report) has been benefiting from an uptick in demand for leisure air travel, bolstered by commendable fleet upgrade efforts. However, the company's bottom line is getting hurt by high labor and fuel costs.
Factors Working in Favor of 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 7.6% year over year in 2023. To cater to this increased demand, capacity (measured in average seat miles) increased 6.7% in the same time frame.
With air-travel demand having improved, American Airlines is constantly looking to add routes and broaden network. Moreover, the agreement inked last year with Boom Supersonic to purchase up to 20 Overture planes from the latter is aimed at modernizing its fleet. The agreement also includes the option for AAL to buy 40 more such high-speed jets.
The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by 2025-end. The company aims to attain this objective through naturally occurring amortization.
Also, it intends to utilize surplus cash and free cash flow to pay down debt. The company reduced its debt load by $3.2 billion in 2023. AAL is now more than 80% of the way to its 2025 total debt reduction goal.
Key Risks
The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. The northward movement in crude price is primarily due to the ongoing production cut by major oil-producing nations and geopolitical tensions. Notably, oil price increased 16% in first-quarter 2024. Fuel price per gallon is expected in the $2.75-$2.95 band in second-quarter 2024.
Apart from rising fuel expenses, AAL is also burdened with expenses related to non-fuel unit costs. As a result of the deal with pilots, salaries, wages and benefits in fourth-quarter 2023 increased 15.6% from fourth-quarter 2022 actuals. The metric increased 17.6% in first-quarter 2024. Due to high labor costs, management expects cost per available seat miles (adjusted) in second-quarter 2024 to increase 1-3% from second-quarter 2023 actuals.
Zacks Rank
American Airlines currently carries a Zacks Rank #3 (Hold).
SkyWest's fleet modernization efforts are commendable. Upbeat air-travel demand also supports the company. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 6.6% over the past 60 days. The stock has surged 204% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.09%, on average.
RYAAY is benefiting from buoyant air-traffic scenario post Covid. Traffic grew 10% during the first nine months of fiscal 2024. Management expects fiscal 2024 traffic to be 183.5 million. On the back of buoyant traffic scenario, its profit after tax also showed year-over-year improvement during the first nine months of fiscal 2024.
Load factor (percentage of seats filled by passengers) was a healthy 94% in the first nine months of fiscal 2024. The carrier’s measures to expand its fleet, to cater to the rising travel demand, also look encouraging.
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Here's Why You Should Retain American Airlines (AAL) Stock Now
American Airlines (AAL - Free Report) has been benefiting from an uptick in demand for leisure air travel, bolstered by commendable fleet upgrade efforts. However, the company's bottom line is getting hurt by high labor and fuel costs.
Factors Working in Favor of 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 7.6% year over year in 2023. To cater to this increased demand, capacity (measured in average seat miles) increased 6.7% in the same time frame.
With air-travel demand having improved, American Airlines is constantly looking to add routes and broaden network. Moreover, the agreement inked last year with Boom Supersonic to purchase up to 20 Overture planes from the latter is aimed at modernizing its fleet. The agreement also includes the option for AAL to buy 40 more such high-speed jets.
The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by 2025-end. The company aims to attain this objective through naturally occurring amortization.
Also, it intends to utilize surplus cash and free cash flow to pay down debt. The company reduced its debt load by $3.2 billion in 2023. AAL is now more than 80% of the way to its 2025 total debt reduction goal.
Key Risks
The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. The northward movement in crude price is primarily due to the ongoing production cut by major oil-producing nations and geopolitical tensions. Notably, oil price increased 16% in first-quarter 2024. Fuel price per gallon is expected in the $2.75-$2.95 band in second-quarter 2024.
Apart from rising fuel expenses, AAL is also burdened with expenses related to non-fuel unit costs. As a result of the deal with pilots, salaries, wages and benefits in fourth-quarter 2023 increased 15.6% from fourth-quarter 2022 actuals. The metric increased 17.6% in first-quarter 2024. Due to high labor costs, management expects cost per available seat miles (adjusted) in second-quarter 2024 to increase 1-3% from second-quarter 2023 actuals.
Zacks Rank
American Airlines currently carries a Zacks Rank #3 (Hold).
Investors interested in the Zacks Airline industry may consider SkyWest (SKYW - Free Report) and Ryanair (RYAAY - Free Report) . SkyWest presently sports a Zacks Rank #1 (Strong Buy) and Ryanair carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SkyWest's fleet modernization efforts are commendable. Upbeat air-travel demand also supports the company. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 6.6% over the past 60 days. The stock has surged 204% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.09%, on average.
RYAAY is benefiting from buoyant air-traffic scenario post Covid. Traffic grew 10% during the first nine months of fiscal 2024. Management expects fiscal 2024 traffic to be 183.5 million. On the back of buoyant traffic scenario, its profit after tax also showed year-over-year improvement during the first nine months of fiscal 2024.
Load factor (percentage of seats filled by passengers) was a healthy 94% in the first nine months of fiscal 2024. The carrier’s measures to expand its fleet, to cater to the rising travel demand, also look encouraging.