AAL - American Airlines Stock Should Soar On Debt Reduction

2024-05-22 10:45:47 ET

Summary

• American Airlines Group Inc.'s Q1 earnings show a significant erosion of earnings, with operating income declining 98.5% and operating margin hitting 0.6%.
• The airline is facing challenges in controlling costs, with unit costs increasing due to inflationary pressures and higher salaries, wages, and benefits.
• Despite the challenging operating environment, I believe that American Airlines stock is undervalued and maintain a buy rating based on the company's deleveraging plans and forward projections.

Airline stocks are rather difficult to invest in. In my view, the airline industry is in a continuous value destructing cycle by throwing capacity on the market exceeding demand. After the pandemic, many airlines would do things differently, aiming to run a leaner business. However, what we see is that inflationary pressures have pushed cost up, and those costs cannot be passed on indefinitely to consumers. The high risk for airlines will be that it will face a higher cost balance while growth to the unit revenues is rather limited....

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