Shares of American Airlines (AAL) tumbled in pre-market trading after the company’s outlook left investors disappointed. Looking ahead, the airline expects its Q1 adjusted loss to range from $0.20 to $0.40 per share while FY25 adjusted earnings are likely to be between $1.70 and $2.70 per share. For reference, analysts were expecting AAL’s Q1 loss to narrow further at $0.06 per share while FY25 adjusted earnings were projected to be $2.45 per share.
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Notably, the company expects unit costs, excluding fuel, to rise in the low-single-digit percentage in the first quarter. This increase stems from several key factors including a greater proportion of regional jet operations and labor agreements finalized last year that would result in the airline incurring rising costs.
AAL Reports Upbeat Q4 Results
In the fourth quarter, the company’s adjusted earnings more than doubled year-over-year to $0.86 per share, above consensus estimates of $0.66 per share.
Furthermore, the company’s revenues increased by 4.6% year-over-year to $13.66 billion in the fourth quarter. This surpassed Street estimates of $13.4 billion.
AAL Is on a Rebound after a Failed Cost-Cutting Strategy
In 2023, American Airlines adopted an aggressive strategy of renegotiating travel contracts with corporate travel agencies and reducing perks and discounts. However, this approach backfired, resulting in declining revenue, damaged the airline’s reputation while providing its competitors an advantage. Consequently, the carrier spent much of 2024 repairing its sales strategy and mending relationships with corporate travelers to regain some of its lost corporate customers.
Is AAL a Buy or Sell?
Analysts remain cautiously optimistic about AAL stock, with a Moderate Buy consensus rating based on 10 Buys and seven Holds. Over the past year, AAL has increased by more than 30%, and the average AAL price target of $20.81 implies an upside potential of 11.5% from current levels. These analyst ratings are likely to change following AAL’s results today.
