Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

American Airlines Has Nowhere to Go but Down

Companies / Corporate Earnings Apr 25, 2011 - 12:09 PM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleJack Barnes writes: In February, I made my case against United Continental Holdings Inc. (Nasdaq: UAL), - owner of both United Airlines and Continental Airlines - saying high fuel prices would be too much for the company to bear.

Well the same is true for AMR Corp. (NYSE: AMR), which is best known as the parent company of American Airlines - the fourth-largest airline in the world. The rising cost of fuel has put a squeeze on the company's margins, leaving it a hostage to higher oil prices.
So let's "Sell" AMR Corp. (**).


Sky-High Fuel Costs
AMR is headquartered in Fort Worth, TX. It was founded in 1930 as American Airlines; however, service didn't start until 1934.

American Airlines had a fleet of more than 620 aircraft as of December, providing airline service to 40 countries around the world.
The company currently is facing numerous headwinds as it tries to navigate a new economic reality. Those headwinds include:

•Operating costs that are higher than those of its peers.
•Increased pension obligation costs.
•A large pile of debt.
•And low revenue.

But the greatest detriment to American Airlines' business is higher fuel costs.

The pain of higher fuel costs is particularly acute for American, which has a fleet of older aircraft that consume more fuel per air mile seat than planes flown by competitors like Jet Blue Airways Corp (Nasdaq:JBLU).

American Airlines last Wednesday reported a first-quarter loss of $436 million - or $405 million after one-time adjustments are considered.

Fuel costs accounted for 32% of the company's operating costs, consuming $1.8 billion in the first quarter. That's an increase of $366 million, or 25%, from a year ago.

American Airlines also was hurt by winter storms that in the first three months of the year forced it to cancel 9,000 flights.

American Airlines can't change the weather, but it is trying to address some of its leveraged costs issues by upgrading its planes. The company plans to retire at least 25 of its MD 80 aircraft this year. These airplanes were designed and built in an era of cheaper fuel cost estimates.

That's good for the long term, but in the short term it means the company is getting squeezed between higher fuel costs and new aircraft replacement costs.

So while American Airlines is increasing its revenue, its peers are still better positioned to profit from higher flight charges per seat. This leaves the company bleeding losses, with no expectation it will return to profit in the next year.

American Airlines has $4.5 billion in cash, but that is offset by $11 billion in debt to be serviced. This pile of debt leaves investors with a book value of minus $11.83 per share without even accounting for the company's first-quarter losses.

Sadly, as the last of the great legacy airlines, American Airlines may need to consider filing for bankruptcy in the coming months. That would help the company prepare for a future of stubbornly high fuel costs and shrinking consumer travel demand.

AMR Corp. stock is testing new lows as a matter of routine, sinking as far as $5.50 a share last week.

Action to Take: "Sell" AMR Corp. (NYSE: AMR) (**).

It's time to sell AMR Corp. and American Airlines and look to preserve our capital. The company is struggling with an old fleet, higher fuel costs, and an excessive debt load. No one expects the company to return to a profit anytime soon.

In fact, there is no reason to buy any airline company's stock until oil prices drop significantly. So, until we see oil prices collapsing and airlines booking the fatter margins to their balance sheet, let's stay away from the sector.
(**) Special Note of Disclosure: Jack Barnes has no interest in AMR Corp. (NYSE: AMR).

[About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Hitachi Holdings Inc. (NYSE: HIT).]

Source : http://moneymorning.com/2011/04/25...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in