American Airlines Earnings: We See Costs Overshadowing Market Share This Year

Key Morningstar Metrics for American Airlines Group

• Fair Value Estimate: $13.10
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of American Airlines Group’s Earnings

American Airlines Group AAL released first-quarter results on April 25, and we have raised our fair value estimate to $13.10 per share, predominantly due to the time value of money. Our no-moat rating is intact. A few adjustments to the fair value estimate resulting from the company’s beefed-up capital spending plan for aircraft and balancing its pension obligations were offset by a more straightforward reflection of the value of its deferred tax obligations.

American’s results came close to management’s previous targets and close enough to Morningstar’s to keep us from meaningfully altering our 2024 forecast. We await the impact of a handful of updated labor agreements the company is negotiating, such as with flight attendants, who recently inked a record deal with Delta DAL that American will likely match. Some competitors more constrained by Boeing’s BA backlog may fall short of capacity later in the year while American can deploy its relatively newer fleet. However, we believe the structural costs that labor and maintenance represent will likely overshadow short-run capacity shuffles in their impact on American’s results.

Our midcycle operating margin outlook for American is 10%, about 370 basis points below the 2015-19 average (margin declined steadily over that period). We forecast about $0.02 more in structural costs per available seat mile in the firm’s mid-term future than in 2015-19, with passenger revenue yields descending to near 2018 levels.