AAL

High fuel prices certainly affect airline stock prices. But is it so dramatic? Airlines have fewer flights in 2022 while their revenues are close to 2019 figures. According to the U.S. Bureau of Economic Analysis the price of an average airline ticket in 1978 was $695 and if we consider  the change in inflation since then, we may see that things are not so bad as  now the price of an average airline ticket is at $297. It is estimated that the average American could have travelled by air 43 times a year back then,  compared to 117 times this year. In other words, rising ticket prices could hardly affect airlines business.

American Airlines has seen a 12% rise for Q2 2022 revenues compared to the same period of 2019 despite the number of passengers dropping by 8%. The risk of rising pilot wages by 17% by 2024 should be mentioned. This raise was decided by the company after a bug was discovered in the internal staff distribution system that prompted a shortage of pilots compared to the scheduled flights. This bug allowed pilots to refuse to pilot 12,075 flights in order to pressure the company to raise salaries. This refusal resulted in a triple hike of pilots’ wages to fly during the hot summer season. Other airlines like Delta and United Airlines have been forced to raise wages too considering understaffing after the COVID-19 pandemic.

American Airlines has a large $25 billion debt that primarily rose due to new aircraft purchases. The company has $12 billion of fixed assets. The company’s management is planning to lower its net debt to $15 billion by 2025, which would increase net cash flows improving its fiscal balance. The forward P/EPS ratio for 2023 is forecasted at 6.4, which is extremely low for an airline.

The mid-term target price for American Airlines is at $20.