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American Airlines (AAL) Stock Q2 Earnings Preview: It’s All About Costs

Simon Mugo trader
Updated 20 Jul 2022

Trade American Airlines stock Your capital is at risk

Key points:

  • The American Airlines (AAL) stock price has risen 24.3% in a month.
  • The airline will issue its Q2 report tomorrow; many expect poor results.
  • Investors should wait for the results before buying AAL stock.

The American Airlines Group Inc (NASDAQ: AAL) price has risen 24.26% in the past month and was trading higher today ahead of its Q2 earnings results scheduled to be released tomorrow. As a result, many ask, “how will the airline manage rising costs?”

To answer this question, we must dig deeper into the airline’s operations and find a few interesting facts that help us predict what to expect in tomorrow’s earnings. First, the airline hiked the salaries of its pilots to ensure that they stick around and minimise the staff shortages facing most of its competitors.

Also read: The Best Travel Stocks To Buy Right Now.

However, raising pilot salaries immediately translates into higher costs for the airline when fuel costs have reached record highs. Therefore, the company is facing significant cost pressures from multiple sources with no relief.

The airline could have a hidden advantage over its competitors in that it may run its flight schedule seamlessly without having to cancel flights due to high demand and lack of enough pilots to fly planes.

We can look at what other analysts are saying since they are generally regarded as smart money investors. In the last month, analysts have lowered their price targets on AAL stock, which is a bad sign since they expect the airline’s performance to dip in Q2 and suffer in Q3.

For example, analysts at Citi lowered their AAL stock price target to $15.75 on June 11, 2022, while Susquehanna Bancshares analysts lowered their price target on AAL stock from $19.00 to $15.00 a day later.

The Citi analyst cited American Airlines’ higher leverage than its peers as a point of concern while issuing a “neutral” rating on its stock. He also pointed out that the revenue trends of its top 25 routes are less robust than its peers. Lastly, the airline faces regulatory scrutiny over some of its partnerships.

Based on the analyst reports, it is clear that many expect American Airlines to perform poorly in Q2. As an investor, I would wait for the airline to report its earnings tomorrow before deciding whether to buy or hold off.

*This is not investment advice. Always do your due diligence before making investment decisions.

American Airlines stock price.

American Airlines stock price 20-07-2022
Source: Tradingview

The American Airlines stock price has risen 24.26% in the past month, but could it drop on earnings.

Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading