American Airlines (AAL) is a stock with some of the most negative sentiment around it in the market. Sure it has a debt to equity ratio that would make even the most leveraged wall street bets autist throw up in their mouth, a real concern if interest rates on their debt spikes up and with delta variant concerns it can lead you as an “investor” being unable to sleep at night.
But does any of that even matter? Absolutely not.
American Airlines has some awesome things going for it and is a tendie wagon waiting to be hopped on. Now I know what your asking…….why would I invest in this “dumpster fire”, least favorite of the airline stocks by institutional investors that has diluted shareholders a ton with equity offerings during this pandemic to stay afloat?
Simple. Second level thinking. Their latest earnings report tells a lot of good things that are backed up by numbers. People are overestimating how bad things are and American will come up looking very strong taking us to tendie town. They reported significant revenue improvement in the second quarter, as domestic leisure travel has recovered quickly and business travel have begun to recover.
Investment Thesis: American Airlines is going to fly high with higher than anticipated travelers, market has underestimated travelers. American Airlines has the largest fleet and the youngest among U.S. major airlines which will dampen maintenance and fuel costs. Capital expenditures will also be lower then previous with fleet renewal largely already completed. They are also committed to pay down 15 billion dollars of debt by 2025. These factors will help them outperform their competitors bottom line and help deleverage the company. Enticing investors. And amidst all the chaos and hate right now, makes it a compelling investment to get in early before it works its way back to a market cap before Covid.
Updates from last earnings
- Passenger revenue increased 105.8% from the previous quarter, the largest increase we’ve seen from U.S. network carrier this quarter, on a 44.4% increase in capacity, a 29.5% increase in load factors to 77.0% and a 10% increase in yield. These metrics remain 24.6%, 11.1%, and 11.4% below 2019 levels, respectively.
- Management said business travel improved from roughly 20% of 2019 levels in March to 45% of 2019 levels in June and that much of the increase in demand was from travel within the West Coast. American has not traditionally had much of a presence in business travel on the West Coast, which suggests that the code-sharing alliance that American initiated with Alaska Airlines is expanding American’s relevant market.
- Adjusted cost per available seat mile decreased to 12.61 cents per mile from 16.45 in the prior quarter, as higher capacity allowed increased fixed-cost absorption. Management said it expects 2023 CASM to be flat relative to 2019 levels.
This company is turning things around and is an industry leader. People aren’t seeing the positive in this company as it is being overlooked and analysts are becoming more optimistic for the airline industry as they are all hiring again and things are really looking like they will make it through the pandemic. Things are getting better and soon business travel will be rampant once businesses realize they want to gain an edge over other competitors by meeting in person rather then a zoom call in a post pandemic world.
American, even though very leveraged, should have no problem in the capital markets unless the pandemic just goes berzerk on the airline industry which is unlikely at this point. The strongest part of my entire investment pitch is the fact that American Airlines has “American” in the name and the government can’t let our national airline fail.
The price movement is at a great point to enter calls where you could double or triple profit going into Thanksgiving/Christmas season.
This article was written by u/Amurphy747.
