American Airlines Takes Leap Of Faith With Increased Capacity

American Airlines Group Inc. (AAL) reported a Q1 2020 loss of $2.65 per share in April, compounded by a 19.5% decline in year-over-year revenue, triggered by a worldwide air travel collapse due to the COVID-19 pandemic. The bearish results weren’t a surprise, given well-documented woes of the airline industry, but Wall Street analysts still understated the severity of the losses. The news set off an aggressive sell-the-news reaction, dumping the stock to an 8-year low on May 14.

American Airlines Ticket Sales Picking Up

The outlook improved in the second half of May, with demand exceeding supply through the end of the second quarter. The load factor also improved at a steady pace, lifting from 15% in April to 63% in June. That uptick gave American Airlines a boost and the incentive to sell flights up to capacity, starting on July 1. However, it’s a risky move, requiring the carrier to add substantial payroll at the same time an out-of-control epidemic is sweeping through Southern and Southwestern states, forcing the EU to ban flights from the United States.

 

Executives outlined the latest initiative on Thursday, advising that “face coverings are now mandatory for all customers and team members while at work. As team members report to work every day, we have temperature checkpoints in place, and we’re also asking customers to certify they are symptom-free before traveling. We have also started a new collaboration with Vanderbilt University Medical Center to create a Travel Health Advisory Panel, which will advise on health and cleaning matters.”

Wall Street And Technical Outlook

Wall Street has taken a cautious approach on the stock, which was underperforming its rivals for many quarters prior to the pandemic. 3 ‘Buy’, 3 ‘Hold’, and a stomach-churning 7 “Sell’ recommendations highlight this skepticism, even though American Airlines has now dropped nearly 60% below the 2020 high. Targets range from a low of $7.00 to a street high $27.00, with price currently sitting at the dead center on the median $12.88 target.

Dilution could mark the biggest negative for American Airlines investors in coming quarters, with secondary offerings and heavy borrowing undermining bounces and uptrends. More importantly, the stock is now trading less than 5 points above the deep March low, raising odds for a retest that could trigger a dreaded death spiral, driving the once-profitable carrier into bankruptcy or a hostile takeover.