American Airlines Group Inc.’s (AAL - Free Report) performance with respect to total revenue per available seat miles (TRASM: a key measure of unit revenues) is encouraging. The company expects TRASM to increase in the band of 1-3% during the third quarter of 2018. The upside can be attributed to strong demand for air travel, benefiting the entire airline industry.
The company’s measures to counter challenges posed by high fuel prices are also impressive. Most recently, the carrier increased checked bag fees by $5 each for both first and the second bags. The measure is anticipated to partly offset the impact from high expenditures due to escalating oil prices. This is because the airline generates a significant amount of revenues from baggage fees.
Additionally, American Airlines announced plans to discontinue the unprofitable Chicago-Shanghai route from October. The carrier cited rising fuel costs as a reason for its decision apart from intense competition from Chinese carriers. Simultaneously, it announced a few additional services to destinations like Munich, Dublin and Berlin in order to strengthen its European footprint.
Further, the company’s efforts to reward shareholders through share buybacks and dividend payments are appreciative as well. The carrier has returned more than $11 billion to stockholders via share repurchases and dividends since mid-2014. Moreover, in April 2018, the company’s board cleared a new buyback program worth $2 billion. The same will be completed by Dec 31, 2020.
The company also boasts a stellar earnings history, having surpassed the Zacks Consensus Estimate in each of the preceding four quarters with an average beat of 2.3%. Moreover, the company has a commendable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three.
In light of these positives, we believe, investors should hold on to American Airlines for now.
Zacks Rank & Key Picks
American Airlines carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Spirit Airlines, Inc. (SAVE - Free Report) , CSX Corporation (CSX - Free Report) and Union Pacific Corporation (UNP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Spirit Airlines have rallied more than 27% while CSX and Union Pacific stocks have surged more than 43% each.
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