Bernstein Upgrades American Airlines: Closer to a Have Than a Have-Not

American Airlines Group Inc. (AAL) has received a significant boost from Bernstein analyst David Vernon, who upgraded the stock to 'Outperform' from 'Market Perform.' This upgrade reflects a positive industry backdrop and the airline's new co-branded credit card deal with Citi, which is expected to generate substantial cash flow in the coming years. The deal, set to launch in January 2026, is projected to increase annual remuneration from credit card and other partnerships by 10% from 2024 levels, with revenue approaching $10 billion. This could translate into an additional $1.5 billion in pre-tax income compared to 2024.

The new, steady revenue stream from the Citi credit card partnership addresses a major critique of the airline: its high leverage. Bernstein estimates the terminal value of the credit card deal at approximately $12 billion, which "changes the story for an airline critiqued for its high leverage." The analysts believe the deal will enable American Airlines to pay down debt more effectively, significantly improving its financial outlook.

In addition to the credit card deal, American Airlines' upgraded fourth-quarter outlook is driven by a combination of improved pricing and lower fuel costs. The airline's new co-branded credit card deal with Citi, along with better pricing and lower fuel costs, is anticipated to boost American Airlines' pre-tax income by approximately $1.5 billion compared to 2024 levels. Bernstein estimates the terminal value of the credit card deal at around $12 billion, which could significantly improve the airline's financial outlook and address its high leverage.



American Airlines' stock price has been on an upward trajectory, with a year-to-date increase of 24.9% as of Monday's close. The airline's improved financial prospects, driven by the new credit card deal and better pricing and fuel costs, have contributed to this positive performance. As the airline continues to address its high leverage and improve its financial outlook, investors may see further upside potential in the stock.



In conclusion, Bernstein's upgrade of American Airlines to 'Outperform' reflects the airline's improved financial outlook, driven by the new co-branded credit card deal with Citi and better pricing and fuel costs. The deal is expected to generate substantial cash flow, enabling the airline to pay down debt more effectively and address its high leverage. With a positive industry backdrop and strong fundamentals, American Airlines is poised for continued growth and success in the coming years.