American Airlines (AAL) Update Q1 Expectation, Should You Buy AAL?

The last two years have been unprecedented for airlines. Any publicly traded company that revolved around travel fell victim to heavy selling on non-existant revenue and international lockdowns. Post-covid optimism has seen buyer interest return to the travel sector, hoping to snap up undervalued, depreciated stocks in time for the great travel bounce. There are still macro concerns weighing on the industry, with rising fuel prices a critical headwind for the aviation industry in particular. 

Today, American Airlines (NASDAQ: AAL) updated its Q1 revenue outlook, estimating it to be down 16% versus Q119. Whilst the numbers seem worrying, there's a silver lining in the fact that the update comes 1% ahead of the previous -17% expectation given in the company’s March guidance. AAL said that during the first quarter, the company flew 59.5B total available seat miles, which is down 10.7% compared to Q119. 

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Again, the company amended guidance given in March with its cost-per-available-seat-mile to be up between 12% and 13%, compared to previous guidance of 11% and 13%. However, in terms of fuel, American estimates cost between $2.80 and $2.85 per gallon of jet fuel; a rise from the previous estimation of between $2.73 and $2.78. 

Financially, the company expects to end Q1 with about $15.5B in total liquidity, with a further $160M in net special items before taxes. These include a non-cash impairment charge to write down the carrying value of its retired Airbus A330 fleet to the estimated fair value due to current market conditions for some used aircraft. 

The travel sector is on the bounce, but staffing issues and fuel costs are still tailwinds for the company, and investors might have to wait until further into 2022 for pre-pandemic earnings expectations.