American Airlines (AAL): Jim Cramer’s Warning as Stock Reverts to “COVID Levels”

The airline sector’s recovery from the pandemic has been anything but smooth, and American Airlines (NASDAQ:AAL) finds itself at the center of Wall Street’s scrutiny. In recent remarks, Jim Cramer, the outspoken host of Mad Money, has labeled AAL’s performance a “shame,” noting its return to pandemic-era valuation levels. While the stock’s struggles reflect broader industry challenges, investors must weigh Cramer’s warnings against emerging tailwinds like falling oil prices and disciplined capacity management.

The “COVID Levels” Dilemma

Cramer’s critique centers on AAL’s stock price reverting to levels seen during the 2020–2021 pandemic lows. Despite a brief rally in late 2024 (driven by improved Q4 revenue guidance), the stock has since fallen 30–40% from its peak, aligning with broader declines in the airline sector. This retracement, Cramer argues, underscores lingering investor skepticism about the airline’s ability to sustain profitability amid macroeconomic headwinds.

Why Cramer’s Bearish Tone Matters

1. Labor Costs and Earnings Volatility:
   Cramer has repeatedly criticized AAL’s reliance on revised earnings guidance tied to unresolved labor negotiations. For instance, after AAL cut its Q1 2025 outlook, its shares dropped 9%, reflecting investor frustration with management’s inability to stabilize costs.

2. Trade Wars and Consumer Spending:
   The airline sector faces dual pressures: slowing consumer demand (exacerbated by inflation) and geopolitical risks like U.S.-China trade disputes. Cramer warns that these factors could further dampen business and leisure travel demand.

3. Competition and Capacity Discipline:
   While Cramer praises airlines like AAL for maintaining “capacity discipline” (reducing flights to avoid oversupply), he notes that rivals like Delta and United have outperformed AAL in recent quarters. This raises questions about AAL’s competitive edge in a consolidating industry.

The Case for Caution—and Hope

Despite the pessimism, there are reasons to believe AAL could stabilize. Key positives include:

• Falling Oil Prices: Crude oil has dipped to $62 per barrel in 2025, saving airlines billions in fuel costs. This is a critical tailwind for AAL, which spends ~25% of its revenue on fuel.
• Structural Adjustments: AAL’s reduced capacity and network optimization (e.g., phasing out smaller aircraft) could improve pricing power if demand rebounds.
• Hedge Fund Support: 59 hedge funds held AAL as of Q4 2024—a 44% increase from Q3—suggesting some institutional confidence in its long-term prospects.

The Elephant in the Room: AI Stocks vs. Airlines

Cramer’s broader market analysis complicates the picture. While he acknowledges AAL’s discounted valuation, he ranks it 7th among his recent stock picks, behind AI-driven equities. For instance, an unnamed AI stock gained 15% in early 2025, while AAL’s peers like Delta and United lost ground. This reflects a broader shift in investor sentiment toward growth sectors over cyclical industries like airlines.

Conclusion: AAL’s Crossroads

Jim Cramer’s assessment of AAL as “back to COVID levels” is a stark reminder of the airline’s challenges. With a stock price 30–40% below its peak and competing with AI stocks for investor attention, AAL faces an uphill battle. However, structural tailwinds like lower oil prices and disciplined capacity management could stabilize margins.

The key question for investors: Is this a buying opportunity or a warning sign?
- Bull Case: AAL’s valuation (trading at ~6x forward earnings) offers a margin of safety. If oil prices stay subdued and business travel rebounds, the stock could recover.
- Bear Case: Persistent labor disputes, trade wars, and competition from rivals could prolong underperformance.

The data tells us this is a sector for cautious investors with a long-term horizon. As Cramer advises, “ring the register before the music stops”—but for AAL, the music’s still uncertain.

In the end, AAL’s fate hinges on execution. Until it proves it can navigate labor costs and macro risks while capitalizing on falling fuel prices, the “shame” of pandemic-era valuations may linger.