American Airlines’ AAL customer-friendly initiatives bode well for the company’s prospects. AAL’s commitment to sustainability is also commendable. However, the company is grappling with the drawbacks of the American Eagle Flight 5342 incident.

Factors Favoring AAL

AAL's proactive strategy to enhance customer loyalty has led to the extension of its 37-year partnership with Citi C for another decade. Starting in 2026, Citi will become the exclusive issuer of the AAdvantage co-branded card portfolio in the United States after acquiring the Barclays American Airlines card portfolio. The transition will not affect the benefits for existing card members. The expanded collaboration aims to deliver greater value and rewards for both AAdvantage and Citi-branded card members, with Citi taking over all acquisition channels, including inflight and at airports. This move is designed to drive growth and strengthen customer loyalty for both companies.

American Airlines shows a strong commitment to sustainability with a transparent approach to management and reporting. The company aims to reduce emissions intensity by 45% by 2035 and achieve net-zero emissions by 2050. Its strategy focuses on fuel-efficient aircraft and low-carbon fuels while collaborating with stakeholders to accelerate decarbonization solutions. This proactive approach positions American Airlines as a leader in sustainable aviation.

The southward movement of oil prices bodes well for the bottom-line growth of AAL. This is because fuel expenses are a significant input cost for airlines. In the fourth quarter of 2024, expenses on aircraft fuel and taxes at AAL decreased 20.8% year over year to $2.5 billion. The average fuel price per gallon (including related taxes) decreased to $2.34 from $3.06 a year ago.

Owing to such tailwinds, AAL shares have rallied 66.9% over the past six months compared with its industry’s 36.5% growth.

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AAL: Key Risks to Watch

The downturn in demand for American Airlines, stemming from the incident with American Eagle Flight 5342, which took place on Jan. 29, 2025, is significantly impacting the company’s prospects. This incident resulted in increased safety concerns and eroding consumer confidence. Depending on the outcome of the investigation, the airline may face regulatory scrutiny and financial repercussions.

The company’s financial stability is challenged by elevated expenses and weak liquidity. In the fourth quarter of 2024, total operating expenses rose to $12.5 billion compared with $12.4 in the December end quarter of 2023. Moreover, AAL exited the quarter with a current ratio (a measure of liquidity) of 0.55. A current ratio of less than 1 is undesirable as it indicates that the company does not hold sufficient cash to meet its short-term obligations.Bottom of Form

Stocks to Consider

Investors interested in the Zacks Airline industry may also consider Alaska Air Group ALK and Allegiant ALGT.

Alaska Air Group currently carries a Zacks Rank #2 (Buy). ALK has an expected earnings growth rate of 23.8% for the current year.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 33.1%. Shares of ALK have surged 97.9% in the past year.

Allegiant currently sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of more than 100% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once. The average beat is 31.3%. Shares of ALGT have rallied 5.5% in the past year.

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