American Airlines Has Room to Climb in 2021
As Covid-19 cases spike across the nation, American Airlines (NASDAQ:AAL) stock is in for a bumpy ride in 2021. However, investors have good reason to remain confident in the company’s imminent comeback once we put the pandemic behind us.
The airline, like many of its peers, sustained some massive losses as the virus raged across the nation. Recently, American’s management announced that its daily cash burn rate would come in at the higher end of the expected $25 million to $30 million guidance. Nevertheless, the rollout of the vaccine and rebounding travel demand will serve as major tailwinds for American Airlines.
The approval of the vaccines was followed by numerous questions surrounding their rollout. While the inoculation of the masses is a challenging task, to say the least, airlines, including American, should be helped by its distribution. According to many executives at the company, the vaccines will put it on the road to recovery after months of little demand.
On Dec. 13, American Airlines flew its first shipment of vaccines for the coronavirus on a Boeing 777. The airline is no stranger to the transport of pharmaceuticals and has been in that business for decades.
For American Airlines, the vaccine rollout will serve as a lifeline in its hour of need. One of the more prosperous passenger airlines prior to the pandemic, American was brought to its knees by the virus.
After numerous furloughs and a stimulus check from the government to cushion the blow, American finds itself burning through a great deal of cash. However, Congress finally reached a deal that granted U.S. airlines $15 billion in payroll assistance.
AAL stock is not at its best right now, but it should climb meaningfully in the future. The vaccine rollout and government assistance will keep the company afloat for the first half of the year.
Uncertainty Prevails Over The Return Of Travel
The coronavirus pandemic is widely considered to be the worst crisis in the history of the aviation industry. Months of grounded flights and rounds of furloughs are just one aspect of the repercussions faced by the industry. The sector’s path forward remains questionable, even after the rollout of the vaccine.
Cases around the globe continue to spike with no signs of letting up anytime soon. While the vaccine rollout should spark a recovery, there’s no telling when things will return to normal.
While some airlines remain optimistic about a comeback in 2021, others are bracing themselves for a bumpy ride. American Airlines operates many international flights. But with fresh lockdowns across the EU, many of these flights will remain grounded for the foreseeable future.
Nevertheless, airlines are hoping to benefit from a busy travel season next summer. The bounce back is likely to create intense competition among the major passenger airlines.
The airlines are doing everything they can to make the best of a bad time. American Airlines recently announced an at-home Covid-19 test for $129, which can help passengers avoid quarantine restrictions once they reach their destinations.
During the holiday season, the company offered members of frequent-flyer program status upgrades, bonus miles or passes to its airport lounges.
The Bottom Line
The vaccine rollout will breathe new life into airlines, but a quick path to recovery is not in the cards. Even when travel is close to its pre-pandemic levels, American Airlines will focus on recouping losses over expanding operations. One bright spot is its $14 billion of cash. The company believes that will keep it afloat through the end of the year.
The travel sector’s outlook remains uncertain, but the ongoing rollout of the vaccine and a solid cash balance are sufficient reason to remain optimistic about American Airlines’ comeback. AAL stock is unlikely to generate big returns in the near future, but, ahead of its upcoming takeoff, it is worth holding on to.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.