Last Update22 Sep 25Fair value Increased 47%
American aims to improve yields by doubling down on Premium Economy
I wouldn't go so far as to change my general description of American Airlines as one of the most precarious legacy carriers out there, completely at the mercy of its creditors and, thus, benign refinancing conditions. Yet not only does the latter stand to materialise now that the Fed has restarted to cut interest rates; American also aims to double down just on the right lever to improve its business operationally.
Legacy carriers earn their money with their premium offers: Yields are best where travellers can be induced to cough up more money to get more frills for the same trip, even if that might eat up a bit more space in an aircraft's seat layout and, hence, capacity.
Best of these is Premium Economy, where the loss of seat rows due to extra leg space is lowest as compared with Business or even First, while still enabling the airline to improve its revenue per seat sold (or, more precisely, its revenue passenger miles). The result is higher yields, the key profitability metric in the airline industry. So as long as American can execute on this plan while refinancing conditions stay easy, the Eagle might be spreading its wings again.
There's a single reason why American is the least attractive of US legacy carriers (in terms of investing, anyway): its balance sheet.
If most airlines and certainly those in the US are loaded up to the hilt with debt, American goes so far as to boast negative equity - any startup would go belly-up with a balance sheet such as this one.
Now, you can survive and even generate decent returns with a precarious capital structure, but of course you're super-sensitive to any shock on the demand side of your business, hitting both revenues and margins - and that is where the clouds gather on American.
After the industry's recent warnings re falling travel demand, the already cut-throat competition for market share will get yet more intensive, while margins will inevitably come under pressure.
I fail to see why American might be an attractive investment proposition outside of the rosiest of economic outlooks, which is not what's at hand right now.
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