American Airlines Expects 4Q Daily Cash Burn At ‘High End’; Shares Rise

American Airlines said it now expects its average daily cash burn in the fourth quarter to be at the high end of its previously forecasted range of between $25 million to $30 million per day as the recent resurgence in Covid-19 cases is curtailing travel demand. Meanwhile, shares closed 1.9% higher on Dec. 4.

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In a financial performance update, American Airlines (AAL), noted that like others in the aviation industry, the US airline has this quarter seen a slowdown in demand and forward bookings due to the recent acceleration of the pandemic.

“Following a strong start to the fourth quarter of 2020, rising COVID-19 case counts and associated travel restrictions in the immediate period leading up to the Thanksgiving holiday have resulted in a slowing of net bookings growth, which has persisted into December,” American Airlines stated in an SEC filing.

As a result of the slowdown in demand and modestly higher fuel prices, American Airlines now expects to end the fourth quarter with more than $14 billion in total available liquidity, which excludes any proceeds from the recently announced $1 billion at-the-market equity offering. The US air carrier ended the third quarter with about $13.6 billion of total available liquidity.

The company “continues to expect the recovery in demand to be volatile and difficult to accurately forecast,” it added.

Shares in American Airlines have lost 43% of their value so far this year as stringent travel restrictions tied to the coronavirus pandemic have brought travel demand to an almost halt. US airlines have been burning through billions of dollars incurring huge losses and implementing broad cost-cutting plans, as well as taking steps to shore up their cash buffers. (See American Airlines stock analysis on TipRanks).

However, AAL has been some relief over the past month with the stock advancing more than 40% as the progress on the approval of a safe and effective Covid-19 vaccine spurred optimism for a recovery of the aviation industry.

Meanwhile, Raymond James analyst Savanthi Syth last month downgraded the stock to Sell from Hold, citing liquidity concerns and relative valuation.

“American has made strides in 2020 in creatively addressing holes in the network and in its cost-cutting efforts. However, while the weighted average cost of debt remains just >4% and 40% of the debt is prepayable, our earnings forecast means further equity dilution or limited equity value while debt is paid down over multiple years,” Syth commented in a note to investors. “Additionally, while American may benefit from lower debt payments and capex relative to legacy peers over the next few years, this is more than offset by higher interest expense.”

Overall, the rest of the Street has a moderately bearish outlook on the stock. The Moderate Sell analyst consensus breaks down into 5 Sells, 1 Hold, and 1 Buy. That’s with an average analyst price target of $10.25 implying 38% downside potential lies ahead over the coming year.