Please ensure Javascript is enabled for purposes of website accessibility

American Airlines Sees Cash Burn Rate Trending to Zero

By Howard Smith - Jun 12, 2020 at 11:24AM

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

The airline said it is seeing improving demand as it has recorded positive net bookings since the middle of May.

In a new SEC filing, American Airlines Group (AAL 0.53%) said it expects second-quarter revenue down 90% versus the year ago period. This is in line with what competitor Delta Air Lines (DAL 1.45%) said this week. American also said that its cash burn rate has decelerated from the $100 million per day it saw in April, to about $40 million per day it expects at the end of June. This would be ahead of its previous forecast, and American said it expects cash burn to be near zero by the end of 2020. 

The company's outlook is predicated on improving demand conditions as well as cost reduction initiatives. As net bookings decreased through April, the airline reduced its capacity to better match demand. Recently, however, it said it is adding back capacity, and expects to be at 55% domestic capacity in July compared to last year, and overall systemwide capacity of about 40%, including international. This is an improvement compared to approximately 20% in May, and an expected 25% in June, 2020. 

airplane flying above clouds

Image source: Getty Images.

American feels that it has adequate liquidity, expecting to be at about $11 billion at the end of June, including federal aid from the CARES Act that it expects to receive this month. 

The $4.75 billion loan is expected to have a five-year duration secured by its domestic AAdvantage Program, which has been appraised to have a value between $19.5 billion and $31.5 billion, the company said. As part of the loan agreement, the company expects to issue warrants to the U.S. Treasury for 38 million shares of common stock at an exercise price of $12.51 per share.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

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.
AAL
$15.33 (0.53%) $0.08
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$35.00 (1.45%) $0.50

*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 analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

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

Premium Investing Services

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