American Airlines Earnings: Unit Costs Still Growing Faster Than Revenue

Key Morningstar Metrics for American Airlines

• Fair Value Estimate: $10.40
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of American Airlines’s Earnings

American Airlines AAL reported an $1.1 billion operating profit on $14.4 billion of revenue in the second quarter. While total unit revenue declined about 20 basis points from the second quarter of 2024, structural unit costs grew 5%. Management’s updated expectations for 2025 don’t augur improving costs.

Why it matters: Amid stiff competition from United and Delta, American faces slower top-line growth than it anticipated in 2025, while its unit costs inexorably rise because of 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 updated our 2025 forecast and increased our expected capital expenditures for the firm over the next few years, which lowered our fair value estimate from $11.20 per share to $10.40.

• The shares trade about 10% above our revised fair value estimate, and given our Very High Uncertainty Rating, we would not consider them attractively valued above $5.60 per share.