American Airlines Stock Forecast

American Airlines Stock Forecast: As a whole, the airline industry is having an unexpectedly tough year.

Normally, when the economy is humming along, commercial airlines can count on filling seats with travelers on business and leisure pursuits. Better yet, cargo planes are in high demand for moving goods across the country and around the world to their intended markets.

Unfortunately, trade friction between the US and China has taken a heavy toll on cargo demand in 2019. Growth in cargo has come to a full stop, after rising 3.4 percent in 2018 and 9.7 percent in 2017.

In June, the International Air Transport Association (IATA) dropped its 2019 industry profit outlook from $35.5 billion to $28 billion – a year over year decrease from 2018’s $30 billion.

The September 2019 attack on a Saudi Arabian oil facility hasn’t helped matters. Airlines are especially vulnerable to increases in oil prices, and American Airlines is no exception. As American’s stock prices trend downward, investors are debating whether this is the right time to buy.

American Airlines: Fly Back In Time

American Airlines [NASDAQ: AAL] has an impressive history. The company’s very first flight took place on April 15, 1926, and it was piloted by Charles Lindbergh. For a decade, American was limited to carrying mail from St. Louis to Chicago with some minor forays into passenger service.

In 1936, that all changed. American Airlines founder C.R. Smith had been working with engineer and aviation pioneer Donald Douglas to transform passenger airplanes. Together, they created the DC-3.

American’s first commercial flight from New York to Chicago occurred on June 25, 1936, and an industry was born. American Airlines started trading on the New York Stock Exchange on June 10, 1939.

Since then, American Airlines has continued to innovate, and the company is credited with many air industry firsts. American was first to offer nonstop transcontinental service across the U.S., and it was first to create a dedicated educational facility for flight attendants. American hired the first African-American commercial airline pilot in 1964, and it designed the first airline loyalty program.

AAL Has Been A Rough Ride For Investors 

American Airlines [NASDAQ: AAL] weathered some difficult times in 2011, and it was forced to declare bankruptcy.

By 2014, the company was profitable again, and in 2015, American Airlines Group replaced Allergan on the S&P 500. The next year, American was featured by Fortune magazine as number one on the Best Business Turnaround list.

Today, American Airlines is one of the largest airlines in the world. In partnership with regional carriers, it averages almost 6,700 flights every day and travels to 350 destinations in 50 countries.

American employs almost 130,000 people, and American Airlines Group has a market cap of approximately $12.7 billion.

Investors who have owned American Airlines stock for decades have become accustomed to the company’s ups and downs. For new investors, the decision to buy is a bit more challenging. How is American Airlines doing today, and is it prepared to overcome the challenges facing the commercial airline industry in coming years?

How Oil Prices & Debt Affect American Airlines

Compared to other commercial carriers, American Airlines [NASDAQ: AAL] is in a more precarious position when world events put pressure on the industry. This is, in part, due to its high level of debt as compared to its peers.

The company’s total quarterly long-term debt is approximately $25.29 billion, while United Airlines is at $14.19 billion, Delta is at $9.99 billion, and Southwest is at just $3.10 billion.

Oil prices are just one example of the issues that can affect airline stock prices. Industry-wide, almost 25 percent of operating expenses are related to fuel. In 2018, that figure came in at $180 billion total. Because of its size, American is harder-hit by disruptions to oil supply.

After the attack on the Saudi Arabian facility, Southwest stock lost less than one percent of its value. Delta Air Lines and United Airlines Holdings went down by more than two percent. American, on the other hand, saw a seven percent drop as soon as trading opened on the first business day after the attack. Perhaps investors remember that the company’s 2011 bankruptcy came on the heels of a massive surge in the cost of fuel.

Of course, airlines eventually pass the higher fuel prices onto consumers through more expensive tickets, but that does nothing in the short-term. Airlines must absorb higher fuel prices while honoring travel scheduled before the increase occurred.

Headwinds for American Airlines Stock

There are other issues specific to American Airlines [NASDAQ: AAL].

First, there are on-going feuds between labor and management. The problem came to a head when American took its mechanics to court, alleging they participated in an illegal slowdown that harmed operations over the busy summer months.

American won an injunction against the mechanics in August, but that certainly doesn’t solve the underlying issue.

Second, American was accused of falsely reporting transfer times for the US mail it transported. In late August, American settled with the Department of Justice for $22 million.

Finally, American and some of its peers have had to scramble as a result of issues with Boeing’s 737 MAX.

Global grounding of the plane resulted in a large number of flight cancellations – roughly 115 per day through early November for American. In fact, the airline had to temporarily cancel an entire route due to the 737 MAX crisis. It is working to replace some of the flights with other aircraft, but overall, there is a shortage of suitable planes.

All of these issues meant weeks of negative headlines for American, and stock prices dropped almost 20 percent for the month of August. Fortunately, some of that loss was recovered in the final days of August trading, so the company ended the month down only 13.8 percent.

Is American Airlines a Buy? 

American Airlines Stock Forecast: So far, American Airlines [NASDAQ: AAL] has managed to attract and retain new investors with its impressive turnaround and its five-year dividend payment history.

The 1.4 percent yield might be on the low side, but some expected to see improvements over time as the company grows. For now, it doesn’t appear that such growth is coming in the short-term, so this isn’t the right time for income investors to buy.

Investors willing to gamble of American Airlines’ long-term prospects may have an opportunity here. From that perspective, now is a good time to buy Fortune 500 shares at a discounted rate.

Of course, as with any investment, this one is a gamble. Specifically, American Airlines is in a difficult position right now, and it is unclear whether the company will be able to turn things around quickly.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.