Buy American Airlines Stock as It Taxis to Take off This Summer

With the global rollout of Covid-19 vaccines in full swing and people ready to travel again, now is the time to buy American Airlines (NASDAQ:AAL) stock.

An American Airlines (AAL) airplane waiting on the tarmac. Represents airline stocks.
Source: GagliardiPhotography / Shutterstock.com

The entire aviation industry breathed a sigh of relief after data showed that air travel in the U.S. reached a new peak during the Memorial Day weekend at the end of May, hitting its highest level since the Covid-19 pandemic began in March 2020.

The Transportation Security Administration (TSA) reported that it screened a total of 7.1 million people at U.S. airports during the Memorial Day weekend, processing nearly two million people on the Friday alone.

Those numbers were six times greater than during the Memorial Day weekend of 2020.

While the number of people traveling by air this Memorial Day was still 22% below the holiday weekend in 2019, it clearly showed that air travel is recovering and that there is demand for people to fly again.

That is welcome news to AAL stock, which is the largest airline in the world and now seems to have some tailwinds working in its favor.

American Airlines says that it anticipates its domestic U.S. network will reach 90% of its 2019 seat capacity this summer based on recent booking trends.

Turbulent Year for AAL Stock

The tourism and aviation sectors were among the hardest hit during the pandemic. The International Civil Aviation Organization (ICAO) estimates that airlines collectively lost $371 billion in revenue as passenger volumes plunged more than 60% last year.

For American Airlines, which has more international routes than any other U.S-based carrier with 350 destinations worldwide, the losses were devastating.

American Airline’s passenger capacity was slashed by more than half in 2020. A total of 85 million passengers flew on American Airlines last year compared to 215 million passengers in 2019.

As a result, American Airlines revenues fell 62% year-over-year to $17.3 billion, resulting in a net loss for all of last year of $10.4 billion. To remain aloft, American Airlines initiated several cost-saving measures such as the permanent retirement of more than 150 aircraft and a 30% reduction in management staff.

In all, the carrier achieved $1.3 billion in annual cost-savings. Going forward, American Airlines says it will operate 10% fewer aircrafts due to improved efficiencies.

Taking to the Skies Again

Coming out of the pandemic, American Airlines is taking several steps to further strengthen its operations. The company has bolstered its flights to locations on the U.S. West Coast and across the Northeast.

It also extended its existing partnership with domestic carriers Alaska Airlines and JetBlue, which involves code-sharing on select routes.

The partnership, which is pending regulatory approval, would create one of the largest domestic and international travel networks in the world.

The airline has also added more than 150 new routes to its summer schedule and upgraded hundreds of its domestic flights with wide-body planes to accommodate more passengers and help the airline maximize its market share.

The steps taken have helped American Airlines to steadily improve its financial situation. The carrier reported positive cash flows worth $174 million in this year’s first quarter, which was the first of its kind since the onset of the pandemic.

Strong Outlook

With nearly half of Americans now fully vaccinated against Covid-19, the U.S. is approaching the level needed to achieve herd immunity.

Combined with government stimulus checks, spending on travel in this year’s second half is expected to be extremely strong, and the outlook for domestic air travel is looking much improved.

Multiple polls show that more than half of Americans plan to travel this summer. The aviation sector forecasts that domestic travel in the U.S. will fully recover by early 2022.

Despite the ravages of the pandemic, and a crop of new domestic discount carriers, American has retained its position as the dominant airline in the world.

Management has taken several prudent steps to quickly and efficiently return American Airlines to it pre-pandemic glory.

The company is already talking publicly about paying down debt and deleveraging its balance sheet in the coming months as the recovery of its operations gathers steam.

Buy AAL Stock

As would be expected, AAL stock got hurt badly during the pandemic. Before Covid-19, the airline’s share price was close to $60 a share. It then plunged 85% to a low of $9.04 in May 2020.

Since then, the stock has rallied 144% to now trade at $22.14 per share. With growing demand for air travel in the U.S. and international flights starting to recover, American Airlines stock can be expected to retest its pre-pandemic highs over the next year or two.

Investors wanting to profit from the economic reopening should look to buy American Airlines stock as it wings its way higher.

Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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