Categories Analysis, Industrials

American Airlines has a long way to go before getting back on track

In an effort to reduce the cash burn and preserve liquidity, the management is adopting measures like cost-reduction and stock sale

The latest financial reports of major airline companies paint a bleak picture of the sector, giving a sense that the pandemic-related woes are far from over. It is one of the worst affected industries, with the COVID crisis leaving flights grounded and rendering thousands of employees jobless. However, the encouraging developments on the vaccine front and reopening of markets have started reflecting on the financial performance of aviation companies.

Short Interest

In the case of American Airlines Group Inc. (NASDAQ: AAL), passenger traffic recovered modestly towards the end of last year, which translated into better-than-expected revenue and bottom-line performance. The company’s stock, which has been trading below the $20-mark for nearly a year, made a strong one-day gain, coinciding with the fourth-quarter report that came out this week. It is worth noting that it is one of the most shorted airline stocks.

From American Airlines’ Q4 2020 Earnings Conference Call:

We believe the structural changes we made in 2020 will enable us to produce industry-leading revenues on lower expenses through a focused customer proposition, broader network and a smaller fleet. We will continue to adapt our business customers’ needs and we’ll keep working hard to make sure that they have peace of mind when they travel.”

Hold it!

But it is too early to rejoice as experts are still skeptical about the near-term prospects of the stock, which they believe would drop in double-digits this year. The bearish view, combined with the persistent market uncertainty, can dampen investor confidence and it is likely that many would consider selling AAL. Since there is every reason to believe that markets would bounce back to their pre-COVID levels later this year, it makes sense to postpone buying/selling decisions until a clear picture emerges.

American Airlines Q4 2020 earnings infographic


Meanwhile, the company is taking various measures to reduce the ongoing cash burn and enhance liquidity to navigate the crisis — ranging from new partnerships to aggressive cost-reduction. After the recent stock rally, the management authorized the sale of stock worth $1 billion, taking forward the preparations for the anticipated recovery this year. But the resurgence of COVID cases and new movement restrictions are posing fresh challenges for the company.

Management/analysts’ comments on American Airlines’ Q4 report

“As we turn our attention to the year ahead, 2021 will be a year of recovery. There are still a lot of unknowns, of course, when or how quickly demand will return. Make no mistake, it will return. The good news is there are vaccines. And well, it will take some time for them to be widely distributed, progress is being made every day and that’s encouraging. We don’t know exactly when we may return to prior levels of demand. What we do know is that we’ll prepare to withstand the ongoing crisis irrespective of how long recovery takes,” said American Airline’s CEO Doug Parker while talking to industry experts earlier this week.

Recovery Hopes

Though revenues plunged 64% from last year to about $4 billion in the December-quarter, it was much better than the consensus forecast and the performance in the previous quarters. The case of the bottom-line was no different – a loss of $3.86 per share compared to profit last year. While passenger traffic continued to falter, the freight business emerged as a bright spot registering 37% annual growth.

Highlights of JetBlue Airways’ Q4 results

On Friday, American Airlines’ stock traded slightly below the $20-mark, after paring a part of the recent gains. The current value is down 33% from the levels seen a year ago. The stock has been underperforming the market since last year.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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