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Taxpayers Ought to Avoid American Airlines Stock

As P.T. Barnum said, there's a sucker born every day

American Airlines (NASDAQ:AAL) recently announced that they would no longer practice social distancing on their airplanes, opting to sell every available seat where possible. Since the June 26 announcement, AAL stock has moved sideways.

Turbulence Ahead for AAL Stock as Cash Preservation Rules
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In response to American’s decision, television personality and author Chrissy Teigen, along with Oregon Senator Jeff Merkley, called out the company for its irresponsible actions. 

“@Americanair: how many Americans will die [because] you fill middle seats, [with] your customers shoulder to shoulder, hour after hour. This is incredibly irresponsible,” Merkley tweeted while flying on a packed flight. 

“People eat & drink on planes & must take off masks to do so. No way you aren’t facilitating [the] spread of COVID infections.”

Teigen then responded to Merkley’s tweet with her jab at the airline.

“Not to be dramatic but American Airlines only cares about money and doesn’t care if you get sick and die,” Teigen tweeted. 

It’s okay for taxpayers to bail out the airlines. Yet, for some reason, the passengers (those same taxpayers) aren’t allowed to receive a minimum amount of safety while traveling. How ridiculous is that? 

Oh well, that’s what you get in a loosely-regulated Trump business environment. Profit over passenger safety.

Social Distancing and the Middle Seat

In early June, I argued that Southwest (NYSE:LUV) should keep the middle seat empty permanently.

“Why doesn’t Southwest run flights that physically don’t have middle seats? Imagine how much more comfortable, not to mention healthier; the flight would be,” I wrote June 5. 

“It could run flights without middle seats (more expensive) and flights with middle seats, making the added fee available for interested passengers.”

As I pointed out, Frontier Airlines has kind of figured this out, offering passengers the opportunity to pay an added fee of $39 to $89 to make sure the middle seat is empty in their specific row. 

The bottom line is that passengers should be given an option. For American Airlines to fail to do so is pure greed. And don’t get me started on United Airlines’ (NASDAQ:UAL) chief communications officer’s (CCO) recent comments about how social distancing was unnecessary on flights. 

What’s next? No floatation devices?

The airline industry is fleecing the American taxpayer and American Airlines is leading the deception. Don’t fall for it. Only choose to fly on airlines that respect your well-being and that of its pilots and crew. 

To me, the real PR stunt is your airline claiming it cares about the safety of its passengers but disregards their feelings about flying during a pandemic.

Don’t Invest in AAL Stock

Of the four major U.S. airlines, American Airlines has the lowest Altman Z-Score. It is currently 0.57; anything below 1.81 suggests a possible bankruptcy within the next 24 months. 

The highest? Southwest at 2.54.

In early June, I suggested that the act of airlines packing passengers into their planes would grow old fast. 

“Parker [AAL chief executive officer] also believes that the worst is behind it. If it can get business passengers traveling again, it will be on its way to better finances. The only problem is that American’s running on 20% of their normal schedule,” I wrote June 1. 

“What happens when passengers get annoyed about paying high prices just to be stuffed in a crowded, Covid-19, Petri dish? It’s not going to be pretty. I believe it’s imprudent for anyone, including Parker, to believe we are out of the woods on this crisis. Not by a long shot.”

If I were forced to put money into American — thankfully, I’m not — I would buy its bonds rather than its common stock because bankruptcy is a genuine possibility. 

If you must buy American Airlines stock, at least buy when it’s in single digits to provide a better risk/reward ratio. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/taxpayers-ought-to-avoid-american-airlines-aal-stock/.

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