American Airlines Stock or AAL has suffered a major blow after the COVID-19 pandemic has forced the demand for travel by air to an extreme low.
AAL is trying desperately to overcome the loss suffered from the 3 quarters by cutting down on its capacity. It has been reported that American Airlines stock has suffered a 64.2% loss of passenger revenues until September. It is expected that the capacity of the system after the quarter in December would go down over 50% for the entire year. The last quarter of the year is expected to see a loss of long term international capacity by approximately 75%.
American Airlines Stock Fighting Coronavirus
With the Cares Act expiring on September 30, American Airlines had gone ahead with their decision of retrenching 19, 000 workers. After knowing about its poor position in terms of finance, other workers who still work for the Airlines are at risk of losing their job. The possibility of receiving aid from the Federal Government still remains uncertain.
AAL’s debt-to-total ratio which was reported to be 1.11 in the quarter in June has increased to 1.2 by the time the quarter in September was coming to a close. This ratio has taken a significant leap from 2019 when it was reported to be 1. These ratios only indicate a serious effect of leverage which is accompanied by the dangers of insolvency. American Airlines stock has, understandably, been facing an extremely low upswing of traveling by air owing to the COVID-19 pandemic. As a result, they have taken a loan of $5,477 million from the treasury of the US Department. Though this might bring some financial relief to AAL, it will actually bring long-term debt-related issues to the enterprise.
Future business looks quite bleak as well owing to the growing number of coronavirus affected cases in the US. Not to forget, the reduced demand will ultimately affect the revenue of the company in the quarter of December.
Since the COVID-19 pandemic hit the globe, the airline industry has witnessed a growth of 8.4%. However, American Airlines stock has experienced a sharp decline of approximately 10.4% within a small span of 3 months’ time.
Zacks’ predictions from its market experts for the year 2020 has taken a further dip for the American Airlines stocks. About 2 months ago, their estimation was an $18.92 loss, which has now increased to about $19.95. Following the Zacks No. 4 ranking, the shareholders of AAL are advised to sell their shares as soon as possible. Zacks has also assigned a rating “sell” to American Airlines stocks.
Alternatives
Instead of American Airlines stock, investors can consider United Parcel Service or UPS which has revealed a 12% increase in profits within the last 3 months. GATX Corporation announced its profit touching a 15% growth. Expeditors International of Washington stated their revenue escalation of approximately 3%. There are also several other profitable enterprises for viable investors.
