American Airlines Group: Near-Term Turbulence as Fuel Moves Higher

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American Airlines Group: Near-Term Turbulence as Fuel Moves Higher

moderate, we think both its multiple and Q1 (0.40) (0.40) NM (0.40)

earnings can move higher. Q2 (0.04) 0.15 NM 0.03

Q3E 0.54 (0.46) NM 0.28

What are the bulls saying in response to the results? Q4E 0.75 0.59 -21 0.66

Per convos, bulls were encouraged by AAL's solid underlying revenue and cost trends & 12/26E 0.84 (0.13) NM 0.65

believe it clearly highlights that AAL's initiatives are working. AAL's 3Q revenue 12/27E 2.97 2.53 -15 2.63

guidance 16-19% is above DAL's mid-teens guide and our estimate of 16.1% for UAL. 12/28E 3.46 4.36 26 3.30

In addition, its 3Q CASM-ex guide of 3.5% at mid-point is also better than its primary

Atul Maheswari

competitors. Supporters also note that AAL's profits are depressed currently as fuel has

Analyst

moved higher. Its earnings can inflect in a sizeable fashion in FY'27 as fuel moderates. atul.maheswari@ubs.com

Bulls see potential of flattish RASM-casmx spread for FY'27 and fuel at $3/gallon. This +1-212-713 4103

would result in $3 in EPS. The stock is trading less than 5x that estimate.

Thomas Wadewitz

What are bears saying in response to the results? thomas.wadewitz@ubs.com

Bears believe that AAL's earnings are disproportionately impacted by the move in oil +1-212-713 6116

prices. This puts earnings at a risk if jet fuel continue to rise. Skeptics believe that AAL's

capacity growth is a bit too high in this fuel backdrop, especially given it has the highest

sensitivity to oil among major airlines. Long-term, bears note that AAL is unlikely to

make progress in narrowing the margin gap with its peers as it has a relatively higher

proportion of loss making flying. Skeptics also note AAL's capex profile in set to