American Airlines Earnings: Outfitting Premium Cabins to Stay Competitive; Shares Fairly Valued

Key Morningstar Metrics for American Airlines

• Fair Value Estimate: $12.80
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of American Airlines’ Earnings

American Airlines AAL reported $151 million operating profit on flat $13.7 billion of revenue in the third quarter. While unit revenue declined nearly 2% from the second quarter of 2024, structural unit costs grew 4%. Management described plans to reconfigure its planes to fit more premium seats.

Why it matters: Amid stiff competition from United Airlines and Delta Air Lines, American faces slower top-line growth than it anticipated in 2025, while its unit costs inexorably rise because of increased labor costs.

• Along with industry peers, American saw demand returning since July, after widespread uncertainty about tariffs and the economy dampened it in April and May.
• While we do give American credit in our forecast over the next several years for reducing its variable operating costs by nearly half a penny per mile, its total unit costs, excluding fuel and unusual items (mostly labor-related), are set to grow at a mid-single-digit rate in 2025 before leveling off.

The bottom line: We revamped our forecast for the no-moat airline, including numerous offsetting adjustments such as a higher fuel price forecast, yields persisting over $0.21, and lower borrowing costs, which increased our fair value estimate to $12.80 per share from $10.40.

• The shares now trade very near our revised fair value estimate, and given our Very High Morningstar Uncertainty Rating, we would not consider them attractively valued above $6.40 per share.