Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Shares of American Airlines Group Gained Altitude in June

By Lou Whiteman - Jul 3, 2019 at 3:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A fare hike and positive commentary from management outweighed concerns about the economy and labor issues.

What happened

Shares of American Airlines Group ( AAL 7.00% ) climbed 19.8% in June, according to data provided by S&P Global Market Intelligence, as airline investors responded positively to an easing of trade war rhetoric and a domestic pricing increase that indicates the airlines aren't running into issues filling their seats.

So what

The airlines were hit hard in May on rising trade tensions and fears of a global economic slowdown, with shares of American reaching a 52-week low late in the month. But the shares began to recover along with improving economic sentiment and talk of a truce between the U.S. and China.

Shares of American got a boost in the middle of June after the airline successfully led a round of domestic fare increases, helping to ease concern about demand. While airlines are forbidden from colluding on pricing, they do monitor one another's fare structures closely and try to match rates. For this reason, an attempt by one airline to raise fares often succeeds or fails based on whether competitors choose to match the price.

A 737 in flight soaring over the clouds.

An American Airlines 737. Image source: American Airlines.

Even before the fare hike, American was feeling good about future results. On June 12 during its annual meeting, the company backed its previous forecast of between $4 and $6 in full-year earnings per share, in line with the $5.01 consensus analyst expectation.

American also said it is expanding initiatives that are expected to drive $3.2 billion in revenue improvements by 2021, as well as $1 billion in annual cost savings during the same period.

Still, there is potential for turbulence on the horizon. It was a top performer in what was a strong month for all airlines despite ongoing tensions between the company and its mechanics. The company received a temporary restraining order June 14 to block an alleged work slowdown by mechanics, but in a federal court filing late in the month, American complained that the union had ignored the order.

If relations between the union and the airline continue to deteriorate, it could make it difficult to operate its full schedule during the lucrative summer travel season.

Now what

American has been the laggard among large airline stocks this year, even after the strong June gains. There's reason to hope the ongoing restructuring, coupled with its relative benign exposure to China compared with its top rivals, will allow it to close the gap in the quarters to come.

AAL Chart

Airline data by YCharts

There are still internal issues, most notably the squabbles with its mechanics. And as a customer of Boeing's troubled 737 MAX, American could be forced to increase cancellations or drop routes in the months to come if the plane is not soon certified. Investors should keep their safety belts fastened even at this higher altitude.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
$17.42 (7.00%) $1.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.