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Travel Demand Aids American Airlines (AAL) Amid High Fuel Cost

We have recently updated a report on American Airlines Group Inc. AAL.

Owing to an improvement in air-travel demand in the United States, American Airlines witnessed a 20% sequential increase in third-quarter 2021 passenger revenues. With economic activities picking up, passenger revenues (up 56.1% in the first nine months of 2021) have been increasing from the beginning of 2021 itself.

The carrier's debt-reduction efforts are impressive as well. Management aims to lower debt by $15 billion by 2025-end. The company aims to attain this objective through naturally-occurring amortization. Also, it intends to utilize surplus cash and free cash flow to pay down prepayable debt. In third-quarter 2021, American Airlines prepaid its entire $950 million spare parts term loan facility. During the September quarter, the carrier scheduled debt amortization payments of approximately $649 million and unencumbered 20 Boeing 777-200 aircraft.

The current scenario of rising fuel costs does not bode well for the airline. During the third quarter, the average fuel price per gallon (including related taxes) climbed to $2.07 from $1.23 a year ago as oil prices moved north. With oil prices continuing to move up, the company estimates the average fuel price per gallon to increase to $2.36 in the fourth quarter.

Zacks Rank & Stocks to Consider

American Airlines currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Some better-ranked stocks in the broader Zacks Transportation sector are J.B. Hunt Transport Services JBHT, FedEx Corporation FDX and Schneider National SNDR.

The long-term expected earnings per share (three to five years) growth rate for J.B. Hunt is pegged at 15%. JBHT is benefiting from strong performances across all its segments. The Dedicated Contract Services (DCS) unit is being aided by fleet-productivity improvement and a rise in average revenue-producing trucks. The Integrated Capacity Solutions (ICS) unit is gaining from a favorable customer freight mix as well as higher contractual and spot rates.

JBHT’s measures to reward its shareholders are encouraging. Driven by the tailwinds, the stock has increased 36.1% in the past year. J.B. Hunt currently carries a Zacks Rank #2 (Buy).

The long-term expected earnings per share (three to five years) growth rate for FedEx is pegged at 12%. FDX is benefitting from a surge in e-commerce demand amid the pandemic.

FDX exited first-quarter fiscal 2022 with cash and equivalents of $6,853 million, much higher than its current debt of $125 million. Driven by the tailwinds, the stock has moved up 2.7% in the past year. FedEx currently carries a Zacks Rank #2.

The long-term expected earnings per share (three to five years) growth rate for Schneider is pegged at 20.7%. SNDR benefits from strong performance in the Intermodal and Logistics units.

SNDR’s third-quarter cash balance is also encouraging. Driven by the tailwinds, the stock has moved up 13.7% in the past year. Schneider currently carries a Zacks Rank #2.
 


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J.B. Hunt Transport Services, Inc. (JBHT): Free Stock Analysis Report
 
FedEx Corporation (FDX): Free Stock Analysis Report
 
American Airlines Group Inc. (AAL): Free Stock Analysis Report
 
Schneider National, Inc. (SNDR): Free Stock Analysis Report
 
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