Mixed data on air travel makes it difficult to recommend AAL actions
No doubt about it: like other airlines, American Airlines Group (NASDAQ:AAL) is highly dependent on the deployment of Covid-19 vaccines. Without this, AAL’s shareholders would be in great difficulty, financially speaking.
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 shareholders should assume that the stock price will continue to rise as the ârecovery tradeâ unfolds? Not necessarily.
A mixed picture of good and bad data suggests there may be some hurdles in the road to recovery. Additionally, American Airlines’ recent costly investment in emerging technology could pose substantial risks.
A closer look at the AAL stock
As I mentioned earlier, AAL stock hit a low during the pandemic panic peak of 2020. After the stock hit the $ 9 level, the buyers stepped in and started pushing the price higher. share price.
A long-term perspective provides an idea of ââhow far American Airlines stock can travel. In 2006-2007, 2014-2015 and 2018, the stock reached the resistance level of $ 55 and then fell.
Therefore, it is conceivable that AAL’s stock could once again reach $ 55 at some point. However, it will likely take extraordinary patience.
In addition, there is a major concern that I must raise. As of June 11, 2021, American Airlines shares were listed at $ 23.53.
At the same time, American Airlines’ earnings per share for the past 12 months was – $ 14.73.
When earnings per share are negative and the absolute value is more than half of the share price, it is a red flag.
This is something that current and potential investors will want to pay attention to. Hopefully this 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 investors in AAL shares to take an optimistic view of the airline industry.
However, a big picture of the market can dampen enthusiasm.
Recently, the International Air Transport Association (IATA) published its April 2021 report on demand for air transport. The numbers are sobering and remind us that the “recovery” still has a long way to go.
According to IATA, measured in revenue passenger-kilometers, total air travel demand in April 2021 was down 65.4% from the April 2019 reading.
When you look abroad, the picture becomes even darker. International passenger demand is estimated to have decreased by 87.3% in April 2021 compared to April 2019.
If it can console you, global air freight demand, measured in freight tonne-kilometers, increased 12% in April 2021 compared to April 2019. In addition, it was 7.8% higher than in March. 2021.
But airlines can’t just rely on freight for their income. Until passenger levels approach pre-pandemic levels, it will take 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 considering buying around 250 flying taxis from the UK Vertical aerospace group.
Before you get excited about it, keep in mind that this plan involves a potential pre-order commitment of $ 1 billion.
That’s a high price tag and a massive commitment to still emerging technology. Are American Airlines investors willing to take the risk?
Additionally, Vertical Aerospace Group has yet to conduct the first test of its VA-X4 aircraft – an event which is slated for later in 2021.
The bottom line
Flying taxis are fun to think about. However, many AAL shareholders probably don’t realize that they are investing in it indirectly.
And if you are holding your shares in hopes of a quick recovery in the airline market, now is a good time to check the data and change your expectations.
At the date of publication, David Moadel did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.