American Airlines Earnings: Margins Grew In 2023, Giving Some Leeway

Key Morningstar Metrics for American Airlines Group

• Fair Value Estimate: $12.30
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of American Airlines Group’s Earnings

After reviewing the company’s 2023 results, we’ve raised our fair value estimate of American Airlines Group AAL stock to $12.30 per share from $10.50. The primary driver of this increase was a stabilization of the firm’s cost structure, augmented by overall revenue growth. Though American grew revenue faster than costs, benefiting its bottom line and providing a buffer should industry conditions soften, we will keep an eye on its ability to fill planes. The airline didn’t fill as many seats in 2023 as we expected, but it managed to garner more revenue per seat than we forecast.

After an unpromising third quarter, in which American turned in no revenue growth and sold 3 billion fewer passenger miles than we anticipated, the firm seems to have stabilized its offering and closed the year with nearly twice the operating profit of 2022. We ascribe this in part to ongoing investments, both here and at other airlines, in selling tickets to customers directly online and through apps, where pricing and premium seating options can be tailored more easily than with traditional ticket brokers and travel agents.

Before the COVID-19 pandemic, a pillar of the strategy of full-service airlines was price discrimination between so-called business and leisure travelers. More frequent and shorter-stay travelers who booked through their employers’ corporate travel agencies got bulk discounts for last-minute bookings and premium seats. The pandemic scrambled this formula as travel habits rapidly evolved. As airlines reengineer their ticketing systems and relationships with travel agencies to reflect the reality that business and leisure travelers can be the same person, we expect them to find new ways to attract and reward brand-loyal frequent travelers willing to pay for more comfortable experiences.