Mixed Air Travel Data Makes It Hard to Recommend American Airlines Group

Stock Market

No doubt about it: like other air travel companies, American Airlines Group (NASDAQ:AAL) is heavily dependent on the rollout of Covid-19 vaccines. Without that, AAL stock holders would be in big trouble, financially speaking.

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And indeed, the share price has rebounded since the Covid-19 pandemic devastated the stock market and the travel industry.

Does this mean that AAL stock holders should assume that the share price will continue to climb upwards as the “recovery trade” plays out? Not necessarily.

A mixed picture of favorable and unfavorable data suggests that there might be some bumps along the road to the recovery. Moreover, American Airlines’ recent pricey investment in an emerging technology could incur substantial risk.

A Closer Look at AAL Stock

As I alluded to earlier, AAL stock bottomed out during the peak pandemic panic of 2020. After the stock touched the $9 level, the buyers stepped in and started to move the share price back up.

A long-term perspective offers an idea of how far American Airlines shares can fly. In 2006-2007, 2014-2015 and 2018, the stock ran up to the $55 resistance level and then tanked.

Therefore, it’s conceivable that AAL stock could reach $55 again at some point. However, this will probably require extraordinary patience.

Furthermore, there’s a major concern that I need to bring up. As of June 11, 2021, American Airlines shares were priced at $23.53.

At the same time, American Airlines’ trailing 12-month earnings per share was -$14.73.

When the per-share earnings are negative, and the absolute value is more than half of the share price, that’s a red flag.

It’s something that the current and prospective investors will want to pay attention to. Hopefully, that negative number will turn positive (or at least, less deeply negative) in the near future.

A Long Way to Go

It might be tempting for AAL stock investors to take an optimistic view of the air travel industry.

However, a big-picture view of the market may temper one’s enthusiasm.

Recently, the International Air Transport Association’s (IATA) released its April 2021 report on air travel demand. The numbers are sobering, and remind us that the “recovery” has a long way to go.

According to the IATA, as measured in revenue passenger kilometers, the total demand for air travel in April 2021 was down a whopping 65.4% compared to April 2019’s reading.

When we look abroad, the picture becomes even bleaker. Reportedly, international passenger demand declined 87.3% in April 2021 versus April 2019.

If it’s any consolation, global air cargo demand, measured in cargo tonne-kilometers, increased 12% in April 2021 compared to the April 2019 reading. Also, it was 7.8% higher than the March 2021 level.

Going Vertical?

But airlines can’t just rely on cargo for revenues. Until passenger levels get closer to pre-pandemic levels, it’s going to require a major leap of faith to invest in American Airlines.

And speaking of leaps of faith, American Airlines is taking a chance on the future of electric air taxis.

By that, I mean that the company plans to purchase around 250 flying taxis from U.K.-based Vertical Aerospace Group.

Before you get too excited about this, bear in mind that this plan implies a potential pre-order commitment of $1 billion.

That’s a high price tag and a massive commitment for a still-emerging technology. Are American Airlines investors willing to assume the risk?

Plus, Vertical Aerospace Group hasn’t conducted the first trial of its VA-X4 aircraft yet – an event that’s planned for later in 2021.

The Bottom Line

Flying taxis are fun to think about. However, many AAL stock holders probably don’t realize they’re indirectly investing in them.

And if you’re holding your shares in the hopes of a quick air travel market recovery, it’s a good time to check the data – and modify your expectations.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.