AAL stock has seen a slight decline, falling from levels of $15 in early January 2021 to around $14 in early November 2024, vs. an increase of about 50% for the S&P 500 over this roughly three-year period.
Notably, AAL stock has underperformed the broader market in each of the last three years. Returns for the stock were 14% in 2021, -29% in 2022, and 8% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that AAL underperformed the S&P in 2021, 2022, and 2023.
American Airlines reported a 1.2% rise in revenue to $13.6 billion in Q3'24. This can be attributed to improved capacity, partly offset by lower passenger yield. The company reported an adjusted profit per share of $0.30 in Q3'24, compared to a figure of $0.38 in the prior-year quarter. The company provided its Q4 2024 earnings outlook to be in the range of $0.25 and $0.50 on a per-share and adjusted basis.
Below are key drivers for American Airlines that present opportunities for upside or downside to the current Trefis price estimate.
American's Mainline ASM: American Airlines ASM has decreased from 285,088 million in 2019 to 277,723 million in 2023. We expect it to reach almost 325,000 by the end of the Trefis forecast period.
However, if American Airlines manages to grow its ASM to 350,000+ by the end of the Trefis forecast period, then there could be a potential upside of over 30% to Trefis price estimate for American Airlines Group's stock.
Fuel Costs as a Percentage of Revenues: American's fuel costs as a percentage of its passenger revenues was 21.9% in 2019. However, due to a rise in global crude oil prices, it increased to 24.8% in 2023. We expect this metric to rise to around 27% by the end of our forecast period.
If, however, the crude oil prices rise further from current levels and Mainline Fuel Costs reach 30% by the end of the Trefis forecast period, it could result in a downside of more than 30% to the Trefis price estimate for American Airlines Group's stock.
American Airlines Group was established on December 9, 2013, after the erstwhile AMR Corporation emerged from bankruptcy through a merger with US Airways. It is currently the largest airline in the world, both in terms of passenger traffic and flying capacity.
American Airlines has primary hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York City, Philadelphia, Phoenix, and Washington, D.C. Together with its regional carriers, American operates daily flights to 350 destinations in over 60 countries.
American Airlines is also a founding member of the Oneworld Alliance, which includes AirBerlin, British Airways, Cathay Pacific Airways, Finnair, Iberia, Japan Airlines, LAN Airlines, Malaysia Airlines, Qantas Airways, Qatar Airways, and Royal Jordanian, among others.
American Airlines has the largest service network in the world. This is attractive to customers, especially frequent fliers, as it enables them to earn miles and benefits on a larger network.
Such an extensive service network also enables American Airlines' cargo business, which is one of the largest air cargo operations in the world, with facilities and interline connections available across the globe.
Fuel expenses constitute the single largest cost head — nearly a quarter of the total operating cost — for all airlines, including American Airlines. This makes airlines highly vulnerable to hikes in crude oil prices. As American Airlines does not engage in fuel price hedging, it is all the more vulnerable to sudden increases in crude oil prices.
The demand for flights is highly correlated to global economic growth. Thus, a decline in economic growth, or a recession, reduces the demand for flights, which impacts passenger traffic for airlines. On the contrary, steady growth in the global and the US economy grows demand for air travel, allowing airlines to raise their airfares, occupancy rates, and profits.
Many airlines, including American Airlines, are figuring out ways to grow their top lines through ancillary heads such as baggage fees, access to onboard Wi-Fi, food and drinks, etc. Accordingly, airlines are investing in enhancing their product offerings, which include in-flight Wi-Fi and other entertainment options, improved lounge facilities, and extra-legroom seats.
According to a recent study, North American airlines collectively produce one of the largest streams of ancillary revenues compared to other regions. A majority of this is attributable to stronger merchandising efforts by the carriers, as well as the addition of more à la carte services for sale.
