American Airlines Posts Record Revenue As Strong Travel Demand Persists

American Airlines Stock at a Glance

• Current Morningstar Fair Value Estimate: $21
• Stock Star Rating: 3 Stars
• Economic Moat Rating: None
• Moat Trend Rating: Stable

American Airlines Earnings Update

American Airlines (AAL) posted solid fourth-quarter and full-year 2022 results as underlying travel demand remains strong. The airline delivered record sales of $49 billion for the year and generated $1.6 billion in operating profit, both consistent with our full-year forecast. Its revenue for the full year exceeded 2019 levels by 7%, despite flying nearly 9% less capacity. It has also delivered three consecutive quarters of operating profitability, despite grappling with higher costs related to fuel and hiring and training flight crew personnel. The company benefited from favorable pricing dynamics to offset inflationary costs during the year. We raise our fair value estimate by 5% to $21 per share to reflect continued strength in the demand environment.

Management provided an optimistic outlook for 2023, citing a robust post-holiday booking season as domestic and short-haul international flights remain in high demand. American Airlines plans to add aircraft to its existing fleet during 2023, driving mid- to high-single-digit growth in flight capacity that is poised to approach pre-coronavirus levels. While capacity growth will face headwinds from persistent regional pilot shortages and aircraft delivery delays, we do not foresee these headwinds lasting indefinitely. We continue to forecast a strong recovery in air travel demand in the near term due to pent-up demand, and in the long term as air traffic typically trends with global economic growth. We expect capacity to eclipse 2019 levels by 2024.

Operationally, we are encouraged by steps American Airlines has taken to drive efficiencies in its network, including focusing on more lucrative markets and simplifying its fleet. Additionally, it continued its pursuit of debt reduction by paying down its $1.2 billion term loan during the fourth quarter. Debt reduction since second-quarter 2021 now exceeds $8 billion. Management targets $15 billion in cumulative debt paydown by 2025.