American Airlines Group (AAL) stock is going incredibly cheap as the shares touched a new yearly low of $38.26 on Wednesday. High oil prices, labor costs, industry-wide capacity growth, and technological glitches were cited as the reasons behind the downward trend of the stock. The company remains the world’s biggest airline but investors are turning negative due to its higher debt levels.
Strong demand for air travel has benefited the airline industry. Air travel is most preferred due to the improved job market, increasing disposable income, and decreasing airfares. However, the International Air Transport Association expects global net profit for the airline industry to be $33.8 billion for 2018, down from the previous forecast of $38.4 billion, due to mounting oil prices and rising labor and interest costs.
Apart from these headwinds, investors remained concerned about the company’s escalating debt levels as it has spent aggressively on fleet assets. For lowering the debt levels, market analysts are suggesting American Airlines sell their airplanes and lease them back. But, higher leasing fees and fear of losing customer satisfaction stand as a hindrance for the company to do so.
Recently, a CNBC report stated that American Airlines is cutting back management-level workforce. The report hasn’t mentioned how many employees will be shown the doors. But, the company hinted that none of the customer-facing positions are at risk.
The costs for the company keeps on mounting as it planned to retire older aircraft with a new recent order for 47 Boeing 787s. The Fort Worth, Texas-based airliner is banking in on these new orders to provide improved fuel efficiency and reduce maintenance costs.
Shares of the airline company plummeted 26% year-to-date and 19% in the past one year. The stock had been trading between $38.26 and $59.08 for the past 52 weeks.
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