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Standard & Poor's sees mostly clear skies ahead for the world's largest airline, thanks in part to improved pricing conditions
We at Standard & Poor's believe American Airlines, as the largest airline in the world, is well positioned to benefit from improving U.S. airline industry fundamentals. We think reduced industry capacity and the recent rash of U.S. airline bankruptcies is leading to a change in how airlines price their product, which, along with what we see as strong demand, is driving a sharply improved revenue environment.
At the same time, actions by its parent company, AMR Corp. (AMR; recent price, $23), to cut costs and leverage its revenue base over a smaller base of employees should drive a decrease in unit costs, excluding fuel. We expect the company to return to profitability in 2006, although rising oil prices create a risk. We also expect AMR to be strongly profitable in 2007.
While the stock has had a strong run in the past year, we don't think the current share price fully reflects what we see as AMR's earnings potential. We see significant opportunity for capital appreciation for the stock, driven by an improved industry environment, rising revenues, and ongoing cost cutting. While we strongly recommend purchase of AMR stock, ranked 5 STARS (strong buy), we note that the shares will likely remain very volatile.
Standard & Poor's sees mostly clear skies ahead for the world's largest airline, thanks in part to improved pricing conditions
We at Standard & Poor's believe American Airlines, as the largest airline in the world, is well positioned to benefit from improving U.S. airline industry fundamentals. We think reduced industry capacity and the recent rash of U.S. airline bankruptcies is leading to a change in how airlines price their product, which, along with what we see as strong demand, is driving a sharply improved revenue environment.
At the same time, actions by its parent company, AMR Corp. (AMR; recent price, $23), to cut costs and leverage its revenue base over a smaller base of employees should drive a decrease in unit costs, excluding fuel. We expect the company to return to profitability in 2006, although rising oil prices create a risk. We also expect AMR to be strongly profitable in 2007.
While the stock has had a strong run in the past year, we don't think the current share price fully reflects what we see as AMR's earnings potential. We see significant opportunity for capital appreciation for the stock, driven by an improved industry environment, rising revenues, and ongoing cost cutting. While we strongly recommend purchase of AMR stock, ranked 5 STARS (strong buy), we note that the shares will likely remain very volatile.
