Why the American Airlines share price forecast is so bad

American Airlines share price forecast

Planes grounded for months. People scared to travel by air. Warnings that the aviation industry may never be the same again. When all of these factors are taken together, it’s perhaps little wonder that the American Airlines share price forecast is looking this gloomy.

The crisis enveloping carriers the world over is fast-developing, and the road ahead is unclear. Resuming domestic flights is one thing, but international services is quite another. While coronavirus cases might have died down enough for one nation to take to the skies again, re-establishing connections to one still contending with a high number of Covid-19 infections could prove too dangerous.

Here, we’re going to provide up-to-date American Airlines stock analysis that takes into account all of the factors that make charting a recovery very tricky indeed.

American Airlines stock news

The American Airlines stock forecast has been weathered by dire financial results in the first quarter of 2020. It clocked up a loss of $2.2bn over that period, a dip into the red that hadn’t been seen in seven years. There’s no sign of things getting better. With planes still on the tarmac and future bookings evaporating, American is burning through $70m a day – and tough financial decisions need to be made. Worse still, social distancing measures mean that flights are unlikely to return to their normal capacity anytime soon… and keeping middle seats free to keep passengers apart is going to add insult to serious injury.

Brutal job cuts are being made among management and support staff, and thousands more have opted to retire early or take a voluntary leave of absence. Older planes are being taken out of service much faster than previously planned. In other American Airlines stock news, the company is already discontinuing services to less lucrative cities – and warning these flights will never return.

All of these grim announcements have consequences that extend far beyond the American Airlines stock price forecast. Travelling to some US cities could become a lot harder. Plus, although some savings will be made by abandoning quieter routes, the financial toll associated with offering refunds to customers who cannot fly will only end up being exacerbated.

Those offering the American Airlines share price forecast will undoubtedly be spooked by how the company is being regularly mentioned in features explaining what happens to frequent flyer miles if airlines go bust. Even if demand recovers, passengers will be understandably reticent to make a long-term booking with a firm that’s being linked with collapse.

American Airlines stock predictions are also taking into account the company’s own admission that many changes will stay even when the pandemic is over – “recognising that we will be a smaller airline, with fewer routes and fewer flights”.

Will American Airlines stock go up? Where things stand

AAL was trading above $30 before the full scale of Covid-19 hit – and, at the time of writing, had fallen 62.6 per cent to barely above $11. Given that the stock’s most recent lows were $8.25 – levels not seen since the aftermath of 9/11 – American’s market cap remains dangerously close to rock bottom.

American Airlines stock news has also had to take into account the federal funding that the company has required to stay afloat. AAL had one of the worst debt burdens when the coronavirus crisis began, meaning that it was even more vulnerable than some of its rivals. Although the $10.6bn bailout means payrolls are covered, giving it the liquidity it needs to cover running costs, painful terms were attached. American, and other airlines handed this aid, were told they would need to continue operating a small number of flights – even if these planes were empty.

Another condition will hurt investors more. Given how the US Treasury is putting its wallet on the line, it wants to reap the rewards if things recover. As a result, the government has the option to snap up ownership stakes in American if it so wishes. This could mean that existing equity, already diminished in value, is diluted further.

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We haven’t even discussed the excruciating debt burden that hampers every American share price forecast – an eye-watering sum that stands at $34 billion. That’s more than seven times AAL’s market capitalisation, is likely to grow substantially and will take a devastatingly long amount of time to shift.

American’s chief financial officer Derek Kerr has tried to dismiss rumours that the status quo is unsustainable – flatly rejecting any notion that the airline was at risk of collapsing into bankruptcy. That’s despite the chief executive of Boeing, one of the world’s biggest plane manufacturers, publicly speculating that a US airline would go out of business as a direct result of Covid-19.

American airlines stock forecast 2020

So, now we’ve reflected on all of the doom and gloom that’s in the American Airlines stock news right now, what does this mean for the share forecast?

Well, according to CNN Business, 15 analysts offering an American Airlines share price forecast will be this time in June 2021 haven’t been kind. The median estimate stands at exactly $10 – that’s a 10.9 per cent fall from where we currently are. Both the lowest and highest estimates appear equally unlikely, but there’s no telling what’s around the corner: the best-case scenario puts AAL at $27 (up 140 per cent), while the worst suggests a nosedive to $1 (down 91.1 per cent.)

American Airlines Group Inc.
Daily change
13.67
Low: 13.67
High: 14.25

Surprisingly, most of those offering an American Airlines share price forecast are encouraging investors to hold the stock – that said, a not insubstantial number of pundits are recommending people to sell.

Some analysts, such as Citi’s Stephen Trent, have been keeping a laser-like focus on the amount of money that American is burning through on a daily basis. He warns that the current levels of cash going down the drain are unsustainable and, if things don’t improve, a further cash injection will be needed by the end of the year. Trent’s target is unflattering to say the least – a paltry $9.

As you’d expect, others are taking an entirely different view. They’re impressed by the tough decisions that AAL has made so far, not to mention its defiant language. They also argue that much of the downsides associated with the stock have already been priced in. Given the fears that the markets are currently in denial over the true extent of Covid-19, and further corrections are likely, this could prove over-optimistic.

FURTHER READING: Coronavirus news: the impact of lockdown revealed

FURTHER READING: Deutsche Bank share price forecast: more pain ahead

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