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

Raising our fair value estimate of American Airlines stock.

The American Airlines logo on top of the American Airlines Center.
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American Airlines Group Inc

Key Morningstar Metrics for American Airlines Group

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.

American Airlines Stock vs. Morningstar Fair Value Estimate

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Nicolas Owens

Equity Analyst
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Nicolas Owens is an industrials equity analyst for Morningstar Research Services, LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the aerospace and defense sector, including Boeing, Airbus, and major North American commercial airlines and defense contractors.

Owens previously covered the aerospace sector for Morningstar from 2002-05. Since then, he filled a range of business roles commercializing Morningstar research across a wide swath of the investment audience.

Owens holds a bachelor's degree in politics from Princeton University. He also holds a Master of Business Administration in finance and strategic management from the University of Chicago Booth School of Business.

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