Personal Finance
AAL

Why American Airlines Group Stock Is Hopping This Week

Airplane taking off

What happened

For the second day in a row, shares of American Airlines Group (NASDAQ: AAL) closed higher on Thursday -- up 4.9% on the day, and up 8.3% since Tuesday.

Why the sudden acceleration?

On Wednesday, American Airlines filed an 8-K report with the Securities and Exchange Commission, updating investors on its performance in the fourth quarter. Management said that it expects "total revenue per available seat mile (TRASM) to be up 5.0 to 6.0 percent year-over-year" in Q4. Pre-tax profit margins are also looking healthier, and are expected to range from 6.5% to 7.0%.

Airplane taking off

Please return your seats to a full upright position. American Airlines stock is taking off. Image source: Getty Images.

So what

American Airlines' new numbers look significantly better than what it had previously guided investors to expect: TRASM growth of 2.5% to 5.0%, and pre-tax profit margins of between 4.5% and 6.5%.

Additionally, American's comments regarding its increases in capacity (that is, buying more planes) suggest the company will be able to maintain high profit margins. "Total system capacity" grew only about 1% year over year in 2017, management says, with domestic capacity flat and international capacity rising 4%. So long as American doesn't add planes faster than it's adding revenue derived from those planes, it follows that the company won't be forced to discount prices to fill seats.

Now what

One factor does bear watching, however. American noted that it expects fuel prices to average between $1.88 and $1.93 per gallon in Q4 -- significantly higher than its average fuel cost for the full year of between $1.69 and $1.74 per gallon. If fuel prices continue rising, this could pinch profit margins no matter how much restraint American shows in its rate of capacity expansion.

10 stocks we like better than American Airlines Group

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and American Airlines Group wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 2, 2018

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

AAL

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More