Analyst Note
| Burkett Huey, CFA |No-moat-rated American Airlines reported a difficult third quarter, as the pandemic continues to severely depress travel demand. After reassessing our assumptions on capacity recovery and the company’s cost structure, we’re reducing our fair value estimate to $13.50 from $14.50 to better reflect a more gradual recovery and a slightly lower midcycle margin from increased labor expense. While government loan availability eases immediate risks, we think the company’s historically unfavorable cost structure will make the company’s turnaround operationally difficult, and the bloated balance sheet greatly widens the dispersion of potential equity values.