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5 Travel Company Stocks Likely to Suffer From the Coronavirus in 2020 - 1 of 5

 
#1 - American Airlines (NASDAQ:AAL)

American Airlines Group logo

Year-to-Date Loss: 63%

American Airlines (NASDAQ:AAL) entered 2020 with $29.6 billion of adjusted net debt on its balance sheet. That represents 65% of the company’s 2019 revenue. Of the major airlines, American is the one that can least afford to go further into debt. Yet, that’s exactly what is likely to happen.

Airlines for America, a trade group that represents the industry, has requested a $50 billion loan package from the U.S. government. While there is some posturing in Congress about “bailing out” the airlines, it is likely that the industry will receive some form of stimulus.

But if American Airlines receives a loan, they are going to be the hardest pressed to pay it back. This means that AAL’s path to a profit may take significantly longer than airlines with less debt heading into the crisis.

American has responded to critics of its debt to say that it has $7.3 billion in liquidity, more than any other airline in the world. However, they also have more debt and the highest debt load relative to the company’s underlying profits.

Plus, American Airlines made a tactical error in widely underestimating the lack of demand for its flights. On March 10, CEO Doug Parker provided guidance that the airline would reduce domestic capacity by 7.5% in April and international flights by at least 10% through the summer.

However, that turned out to be a far too conservative estimate. The management of the airline has been forced to walk that statement back and announce a 30% cut in domestic flights and a 75% reduction in international flights in April with likely deeper reductions in both during May.

That’s not the kind of downward revision that investors appreciate. Particularly when American, like other airlines is drawing the ire of investors and Congress with its share buybacks. Between July 2014 and the end of 2019, American spend $12.4 billion buying back its own stock.

About American Airlines Group
American Airlines Group Inc., through its subsidiaries, operates as a network air carrier. It provides scheduled air transportation services for passengers and cargo. As of December 31, 2018, the company operated a mainline fleet of 956 aircraft. It serves 350 destinations in approximately 50 countries, principally from its hubs in Charlotte, Chicago, Dallas/Fort Worth, London Heathrow, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. The company was formerly known as AMR Corporation and changed its name to American Airlines Group Inc. in December 2013. American Airlines Group Inc. was founded in 1934 and is headquartered in Fort Worth, Texas.

Current Price: $11.14
Consensus Rating: Hold
Ratings Breakdown: 4 Buy Ratings, 7 Hold Ratings, 9 Sell Ratings.
Consensus Price Target: $16.88 (51.5% Upside)




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