American Airlines stock fought to rebound from coronavirus-crisis lows as new routes opened while it was battling rising airline fuel costs. And since Dec. 28, American Airlines stock has jumped more than 30% as passengers have again taken to the skies and as fuel costs fall. As AAL prepares to release fourth-quarter earnings, is the stock a good buy? For the answer, take a look at American's earnings and stock chart.
Passenger volumes and airline flight prices soared this holiday season, in spite of severe weather that grounded many flights. And as China reopened its borders this past weekend, that has also led to higher passenger traffic as people returned to the mainland from the U.S. and other locations around the world.
Passenger volumes at U.S. airports have reached a record in the first 11 days of 2023, up 4% from five years ago and even higher than the first 11 days of 2020, before the Covid pandemic hit, according to the Transportation Security Administration. The Sunday after Thanksgiving was the busiest travel day for U.S. airports, when more than 2.5 million passengers passed through U.S. airports, the highest daily amount since Christmas 2019.
Airline prices were 36% higher in November from a year ago, though airfares have come down a bit over the past couple of months, according to the U.S. Bureau of Labor Statistics' latest Consumer Price Index.
The question for American Airlines is just how much it will capture of the increase in passenger traffic.
So far, based on the performance of airlines stocks in 2023, United Airlines and American appear to be taking the lead, with Delta Air Lines a close third. Delta reports earnings on Friday.
American Airlines Stock Fundamental Analysis
Early Thursday, American lifted Q4 guidance, citing robust demand and high airfares. The airline now expects revenue to rise 16%-17% from Q4 2019. That is up from prior guidance of 11%-13%. It projects revenue per available seat mile will jump 24% from 2019 vs. a prior forecast for 18%-20%.
The carrier now expects earnings per share of $1.12-$1.17. That is up from 50 cents-70 cents prior. As of yesterday, 21 analysts surveyed by FactSet, on average, expected AAL to earn 61 cents a share in the fourth quarter on sales of $12.67 billion.
The company is reportedly set to report results on Jan. 26. American Airlines stock climbed 9% Thursday. Shares are up more than 30% from a late December low and working on a third straight weekly advance.
The shares are currently up 10 consecutive days and on pace for the longest winning streak since June 4, 2014, when it rose for 10 straight trading days.
Last month American said, "At the same time as we are adding new, more fuel-efficient aircraft to our fleet, we continually look for ways to operate our existing fleet as efficiently as possible. Doing so enables us to both save on jet fuel costs and reduce ... emissions."
American Airlines topped earnings estimates and reported record revenue in the third quarter, when it reported results Oct. 30. American posted earnings of $483 million, or 69 cents a share, compared with $169 million, or 25 cents a share, a year ago. Analysts surveyed by FactSet were expecting earnings of 54 cents a share.
Revenue surged 50% to $13.46 billion, topping Wall Street expectations of $13.37 billion. The better-than-expected revenue came even as American Airlines flew at 9.6% less capacity than it did in 2019, the company said.
"Demand remains strong, and it's clear that customers in the U.S. and other parts of the world continue to value air travel and the ability to reconnect post-pandemic," American Airlines CEO Robert Isom said in a statement announcing Q3 earnings.
Airline Rivals Post Rosy Forecasts
Rival United also topped third-quarter earnings and revenue estimates last quarter. The report followed record revenue and an upbeat forecast from Delta.
On Oct. 11, American said it trimmed the number of flights. The airline said in a filing on its preliminary results that it cut its flight schedule by nearly 10% in the second quarter.
American also said it flew 68.6 billion total available seat miles in Q3, down 9.6% vs. the pre-pandemic third quarter of 2019, but up 3.6% from Q2 of 2022.
In the second quarter, American's EPS came in at 76 cents on revenue of $13.4 billion. It was American's first per-share profit since the pandemic started.
The shares are now above their 50-day moving average, according to MarketSmith. American Airlines stock on Tuesday retook support at its 200-day moving average for the first time since May. Shares are well above their 52-week low of 11.65 on Oct. 3 but are still significantly below the airline's pre-pandemic levels.
American Continues To Face High Costs
Cowen analyst Helane Becker said in a note to investors in October that the airline industry is still struggling with volatile jet fuel prices, supply chain issues and difficulty hiring and retaining employees, particularly pilots.
The airline faces multiple headwinds. Hurricane Ian grounded hundreds of flights. An antitrust lawsuit filed by the U.S. government seeks to overturn the agreement for American Airlines to share seats and revenue with JetBlue. And the latest news: reports of a plane shortage by Boeing and Airbus.
American also said it's investing an undisclosed sum in Universal Hydrogen, a two-year-old, California-based company building a hydrogen distribution and propulsion ecosystem for the aviation industry.
The antitrust trial that opened in October will determine the fate of American Airlines and JetBlue's Northeast Alliance, which made them partners at three New York area airports and in Boston. They agreed to sell seats on one another's flights along certain routes, pool airport slots, coordinate schedules and share revenue from certain flights.
The government alleges the airlines' partnership will bring higher fares. The airlines contend that working together makes them stronger competitors.
Hurricane Ian struck the East Coast in late September, wreaking havoc from Florida to the Carolinas. More than 1,900 flights were canceled on one day alone, Sept. 30.
Hurricanes, Lawsuit, Plane Shortage Create Headwinds
After struggling through a pilot shortage as the summer began, American now faces a plane shortage. CEO Isom phoned Boeing executives to express dismay with about two dozen 737 deliveries getting delayed this year, people familiar with the call told The Wall Street Journal.
A tight job market has made it even tougher on American as it tries to fill airline jobs.
American is trying to control its costs as the price of jet fuel has begun to fall after months of advances. Add that to 40-year highs of inflation affecting costs, fears of a recession and wage inflation of 5%.
But with the holiday traveling season winding down, American Airlines could surprise investors.
Net-Zero Emissions Goal
Former American Airlines CEO Doug Parker stepped down in March. Parker had been named chairman and chief executive in 2001 and, aside from a four-year stint with Northwest Airlines, had been an American employee since 1986. Isom took over as CEO.
Meanwhile, American Airlines said over the summer it will achieve net-zero emissions by 2050.
"As the world continues to emerge from the pandemic and reconnect, American Airlines is committed to living our purpose to care for people on life's journey," Isom said. "Our environmental, social and governance efforts are key to American's success today and critical to building a resilient airline that will thrive forever."
The IBD Stock Checkup tool shows that over the last three years, American Airlines' revenue fell an average 4%.
Airline Industry Outlook
U.S. airlines have opened more international flights for leisure travelers. However, business travel may be depressed long term because work-from-home and videoconferencing trends aren't going away. So, airlines are competing harder for leisure travelers and have aggressively expanded to new routes with a focus on destinations appealing to outdoor activities.
The International Air Transport Association (IATA) expects global, overall traveler numbers to reach 4 billion in 2024, exceeding pre-Covid 19 levels for the first time since the pandemic. In 2021, overall traveler numbers were 47% of 2019 levels. This is expected to improve to 83% in 2022, 94% in 2023, 103% in 2024 and 111% in 2025.
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Chart Analysis
American Airlines stock hit a low on Oct. 3 when it dropped to 11.65. That was its lowest price since November 2020.
AAL stock has a poor IBD Composite Rating of 66 out of a best-possible 99, but that rating has climbed from 35 in October. The stock also has a relatively weak 78 EPS Rating.
The relative strength line, which compares a stock's price action with that of the S&P 500 overall, remains low but also has been climbing.
AAL stock has a Relative Strength Rating of 66. The best stocks usually have an RS Rating of 80 or higher before they break out to meaningful gains.
Shares have an Accumulation/Distribution rating of B+, indicating that AAL stock buying is above the pace of selling by institutional investors.
American is rated No. 7 in IBD's airline group, which itself is ranked No. 100 out of 197 industry groups, according to IBD Stock Checkup. The RS Rating for the group has risen to 50 from 12 three months ago. Copa, Ryanair, United and Delta are the leaders of the group.
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737 Max, Delays On Jets Hit American Airlines Stock
U.S. and international authorities banned the Boeing 737 Max from service after a fatal Ethiopian Airlines crash in March 2019. That crash followed a similar deadly crash with Indonesia's Lion Air in October 2018. Officials have blamed the Maneuvering Characteristics Augmentation System for the crashes, which together killed 346 people.
On Nov. 18., 2020, the Federal Aviation Administration approved the 737 Max's return to service in the U.S. European regulators followed shortly after. On Dec. 2, the Civil Aviation Administration of China issued an airworthiness directive on the 737 Max. American returned the 737 Max to service later that same month.
But just as the 737 Max takes to the skies again, Boeing now faces new production issues with its 787 Dreamliner. American cut some international flights this summer due to Dreamliner delivery delays.
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Is American Airlines Stock A Buy?
AAL stock chart shows no valid basing pattern or buy point. In addition, the airline faces longer-term headwinds. Passenger traffic is picking up, but American still faces the issues of controlling costs amid the rising price of jet fuel and a tight labor market. Even as the pandemic eases, the travel sector isn't expected to rebound quickly as different markets come back sooner than others.
Bottom line: American Airlines stock isn't a buy right now.
While AAL stock isn't a buy, check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
Follow Michael Molinski on Twitter @IMmolinski
