American Airlines Earnings: Unit Costs Growing Faster Than Revenue

Key Morningstar Metrics for American Airlines

• Fair Value Estimate: $11.20
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of American Airlines’ Earnings

American Airlines AAL reported a $270 million operating loss on $12.5 billion in revenue in the first quarter. While unit revenue was essentially unchanged, unit costs grew 8%. Due to slackening demand for leisure travel and economic uncertainty, management withdrew its guidance for 2025.

Why it matters: Amid stiff competition from United UAL and Delta DAL, American faces slower top-line growth than it anticipated in 2025, while its unit costs inexorably rise due to increased labor costs. Simple math dictates that profits will be lower as a result.

• 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’ve lowered our profit forecast slightly for the no-moat airline, and as a result, our fair value estimate has decreased to $11.20 per share from $12.90.

• The shares have traded around 13% below our fair value estimate recently, but given our Very High Uncertainty Rating, we would not consider them attractively valued above $5.60 per share.