What risks could derail AAL's earnings recovery in 2025?

American Airlines (AAL) faces several risks that could hinder its earnings recovery in 2025:

1. **Strategic Missteps**: AAL's aggressive sales strategy in 2023, which focused on renegotiating contracts with corporate travel agencies while cutting back on perks and discounts, backfired, denting revenue and hurting the airline's image. The company spent much of 2024 rebuilding its sales strategy and mending relationships with corporate travelers to regain some of the lost customers. If similar mistakes occur or if the recovery of the sales strategy is not successful, it could negatively impact earnings.
2. **Higher Operating Costs**: AAL has faced an increase in non-fuel unit costs, with a large portion of the cost growth coming from higher salaries and benefits. The company's labor contracts, including a significant increase in wages for flight attendants and other workers, have contributed to rising operating expenses. If these costs continue to rise or if the company is unable to offset them with increased revenue, it could affect profitability.
3. **Jet Fuel Prices**: The recent uptick in jet fuel prices, driven by global crude benchmarks and geopolitical tensions, could significantly impact AAL's operating costs. Higher fuel prices could lead to reduced profit margins if the company is unable to pass the increased costs onto customers or if it leads to lower demand due to higher ticket prices.
4. **Debt and Pension Obligations**: AAL has a significant debt burden and substantial pension obligations. The company's ability to manage debt and pension payments could be a risk, especially if fuel prices continue to rise or if the company's earnings do not meet expectations. Failure to manage debt could lead to financial strain and potential bankruptcy.
5. **Competition and Market Share**: AAL faces intense competition in the airline industry, with major competitors like Delta Air Lines and United Airlines having a significant market share advantage. The company's ability to maintain and grow its market share in a competitive environment could be a risk, especially if it cannot differentiate itself through better service, loyalty programs, or other strategic initiatives.
6. **Regulatory and Compliance Risks**: AAL, like all airlines, is subject to regulatory risks and must comply with new consumer protection rules and environmental regulations. Failure to comply with these regulations could result in fines, legal issues, and damage to the company's reputation.
7. **Cybersecurity and Data Privacy**: The airline industry is increasingly focused on cybersecurity and data privacy. A security breach or failure to protect customer data could lead to legal issues, reputational damage, and financial losses.
8. **Economic Conditions**: AAL's performance is closely tied to economic conditions, and a downturn could negatively impact demand for air travel. If economic conditions worsen, the company's revenue could be affected.
9. **Liquidity and Current Ratio**: AAL's current ratio has been below 1, indicating a lack of sufficient liquid assets to cover short-term liabilities. If the company's liquidity situation does not improve, it could face financial challenges.
10. **Oversold Territory**: AAL's stock has entered oversold territory, as measured by the Relative Strength Index (RSI), which could indicate that the recent heavy selling pressure is exhausting itself. However, if the stock remains in this territory for an extended period, it could attract speculative investors looking for a bargain, which could be beneficial in the short term but may not address the underlying earnings recovery concerns.

These risks, if not managed effectively, could derail AAL's earnings recovery in 2025.