What happened

American Airlines Group (NASDAQ:AAL) updated its second-quarter guidance, and an analyst took the airline stock out of the penalty box. The two moves together were enough to get the stock soaring 7% higher on Wednesday morning.

So what

American, like all airlines, suffered a miserable 2020 as the pandemic ate into travel demand, but the industry has rebounded nicely in the U.S. as vaccines have become more widespread and consumers stuck in their houses for more than a year head out on summer vacation. Shares of American were up as much as 60% for the year in June as it appeared the worst of the pandemic was behind us.

An American Airlines plane on the tarmac.

Image source: American Airlines.

But the stock has fallen back some as talk of new COVID variants has increased and investors reassess the risk that still lingers as the airlines try to return to profitability.

American helped its cause overnight when it said second-quarter revenue is likely to come in down 37.5% compared to the second quarter of 2019 (prior to the pandemic), a boost over previous guidance for down 40%. American also said it could report a profit before special items, but when all items are included the airline still expects to report a net loss of between $1.1 billion and $1.2 billion.

Those numbers aren't great, but they are better than what some on Wall Street had feared.

Citi analyst Stephen Trent believes that after the pullback, the risk/reward in the stock is more balanced. The analyst upgraded American to neutral from sell, saying that while the company's positioning remains tenuous, a combination of stronger-than-expected second-quarter operations and the stock price falling below his $21.50 target has caught his eye.

Now what

Neutral seems about right for American shares. There isn't anything in the numbers or outlook to suggest the company is in danger, but it is hard to get too excited about the near-term prospects. American is likely to need longer to recover than discounters like Southwest Airlines (NYSE:LUV) and Spirit Airlines (NYSE:SAVE), and there are other so-called legacy airlines, including Delta Air Lines (NYSE:DAL), that should be better able to withstand any new pandemic twists.

Investors in American should buckle up and expect a lot of turbulence as the summer travel season ends and the airlines face a challenging fall.

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.