VALUATION HIGHLIGHTS

1. Other constitutes 55% of the Trefis price estimate for American Airlines Group's stock.
2. Passenger constitutes 43% of the Trefis price estimate for American Airlines Group's stock.

WHAT HAS CHANGED?

AAL Stock vs. S&P 500 Performance

The changes in AAL stock over the recent years have been far from consistent. Returns for the stock were 14% in 2021, -29% in 2022, 8% in 2023, and 27% in 2024.

In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 - indicating that AAL underperformed the S&P in 2021, 2022 and 2023.

Q4'24 earnings

American Airlines reported a 4.6% rise in revenue to $13.7 billion in Q4'24. This can be attributed to improved capacity, partly offset by lower passenger yield. The company reported an adjusted profit per share of $0.86 in Q4'24, compared to a figure of $0.29 in the prior-year quarter. The company provided its 2025 earnings outlook to be in the range of $1.70 and $2.70 on a per-share and adjusted basis.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers for American Airlines that present opportunities for upside or downside to the current Trefis price estimate.

American Mainline ASM (Available Seat Miles)

American's Mainline ASM: American Airlines' available seat miles (ASM) has risen from 285 billion in 2019 to 293 billion in 2024. Our projections indicate this figure will reach nearly 330 billion by the end of the Trefis forecast period. However, if American Airlines were to achieve a higher ASM of 375 billion by that time, our price estimate for ALL could see a potential upside exceeding 35%.

BUSINESS SUMMARY

American Airlines Group was formed on December 9, 2013, following the emergence of the former AMR Corporation from bankruptcy through its merger with US Airways. Currently, it holds the position of the world's largest airline, measured by both passenger volume and fleet size.

American Airlines operates from its primary hubs located in Charlotte, Chicago-O'Hare, Dallas/Fort Worth, Los Angeles, Miami, New York-JFK, New York-LaGuardia, Philadelphia, Phoenix-Sky Harbor, and Washington-National. Together with its regional partners, American provides service to approximately 350 destinations across more than 50 countries daily.

American Airlines is a founding member of the Oneworld Alliance, a global airline alliance. As of recent information, other members of the alliance include British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, Malaysia Airlines, Qantas, Qatar Airways, Royal Jordanian, and SriLankan Airlines.

SOURCES OF VALUE

Extensive Service Network

American Airlines boasts one of the most extensive service networks globally. This is a significant advantage for customers, particularly frequent flyers, as it allows them to accumulate miles and enjoy benefits across a broad spectrum of destinations.

This comprehensive network also supports American Airlines' cargo operations, which rank among the world's largest, offering facilities and interline connections worldwide.

KEY TRENDS

Oil Prices Significantly Impact Profitability

Fuel costs represent the largest single expense for airlines, including American Airlines, typically accounting for a substantial portion of their total operating costs. This makes the airline industry highly susceptible to fluctuations in crude oil prices. American Airlines' policy of not hedging fuel prices further amplifies its vulnerability to sudden increases in these costs.

Demand for Flights Linked to Global Economic Growth

The demand for air travel is closely tied to global economic performance. Consequently, economic downturns or recessions can lead to decreased demand for flights, negatively impacting passenger numbers for airlines. Conversely, sustained growth in the global and U.S. economies typically boosts the demand for air travel, allowing airlines to potentially increase fares, improve occupancy rates, and enhance profitability.

Focus on Ancillary Revenues

Many airlines, including American Airlines, are actively seeking to increase their revenue through ancillary services such as baggage fees, in-flight Wi-Fi access, and the sale of food and beverages. To this end, airlines are investing in enhancing their offerings, including in-flight entertainment options, upgraded lounge facilities, and seats with additional legroom.

Studies indicate that North American airlines collectively generate a significant portion of global ancillary revenues, primarily due to effective merchandising strategies and the expansion of à la carte service options.