American Airlines' 2025 Outlook: Challenges Ahead, but Analysts Remain Optimistic

American Airlines Group Inc (AAL) reported its fourth-quarter FY24 earnings along with a weak guidance, sending its shares down nearly 9% to $17.03 per share on Thursday. The airline projected a first-quarter loss of as much as 40 cents per share in 2025, significantly wider than the 4 cents loss that analysts had forecast. However, analysts remain optimistic about the airline's long-term prospects, citing several factors that support their bullish stance.



Raymond James analyst Savanthi Syth reiterated an Outperform rating on the shares and lowered the price forecast from $24 to $23. She attributed the miss in the company's first-quarter FY25 guidance to the recent surge in fuel prices and the timing of year-over-year CASM-ex pressure, which is more concentrated in the first quarter due to the restoration of region-specific capacity. Despite this, American is expected to finish 2025 with a favorable low-single-digit year-over-year CASM-ex trend, and its 1Q25/2025 revenue outlook exceeded expectations.

J.P. Morgan analyst Jamie Baker reiterated an Overweight rating on the shares and maintained the price forecast of $30.00. He disagrees with the equity market's reaction to American's results and guidance, noting that the airline's labor and loyalty programs are in good shape, and its balance sheet repair is ahead of schedule. Free cash flow generation is strong, and while American faces a tough CASM challenge in the first quarter, it seems temporary and well-understood.



American Airlines' anticipated full-year capacity increase of around 2.5% with a balanced domestic/international split is promising for both the airline and the industry. The airline is also addressing challenges from a previous direct ticket sales strategy that strained its relationship with travel agencies and is recovering in corporate revenues. A new credit card agreement with Citi is expected to provide substantial financial benefits.

In conclusion, while American Airlines faces challenges in the first quarter of 2025, analysts remain optimistic about the airline's long-term prospects. The airline's strong labor and loyalty programs, ahead-of-schedule balance sheet repair, and anticipated capacity increase support a bullish outlook. Investors should keep an eye on the airline's progress in managing its costs and capacity, as well as its ability to execute on its strategies to mitigate the impact of rising fuel prices and capacity reduction on its unit costs.