American Airlines’ strengths
Some of the key strengths that keep American Airlines ahead of its competitors are the following:
- After its merger, American Airlines became the largest airline in terms of fleet, capacity, and number of passengers carried.
- It has a strong hold on key hubs such as Dallas–Fort Worth, Miami, Chicago, New York, and Washington, D.C. It has connectivity over almost every route, giving it a network advantage.
- The AAdvantage program, recognized as the best customer loyalty program, is now even more profitable.
- Known for its onboard entertainment content, it has one of the best onboard services.
- It has been on the path of continuous domestic and international network expansion.
American Airlines’ weaknesses
- AAL’s rising debt levels combined with low margins and unit revenues are a cause of concern.
- Low-cost carriers have been aggressively capturing market share.
- Its international segment still remains weak.
- It’s overly dependent on low fuel prices.
American Airlines’ opportunities
- American Airlines could work on cash deployment and other labor issues.
- There could be more leverage on code-share agreements with other airlines.
- AAL could expand more aggressively by partnering in lucrative markets such as the Asian, East Arab, and African markets.
Threats to American Airlines
- Volatility in the crude oil market and the rise in crude oil prices in the future could hamper AAL’s bottom line.
- Labor issues, if not sorted out, could lead to higher labor costs.
- Low-cost carriers’ aggressive expansion into the markets could challenge legacy carriers.
All in all, American Airlines still has a lot of work to do.
You can gain coverage to airline stocks by investing in the iShares Transportation Average (IYT), which holds 4.2% in Alaska Air (ALK), 3.9% in United Continental (UAL), 3.8% in Southwest Airlines (LUV), 3.6% in Delta Air Lines (DAL), 2.8% in AAL, and 1.7% in JetBlue Airways (JBLU).
Let’s move on now to see the best approach for valuing American Airlines.