It May Be Time to Book Profits, Not a Position in American Airlines

Whether you want to invest in American Airlines (NASDAQ:AAL) or not, you have to give credit where it’s due. Those who chose to invest in AAL stock did so against some extremely alarming trends, most notably the horrendous impact of the novel coronavirus. Today, it’s one of the top market performers.

You need to look at a few key stats, which I’ll share right now. First, over the trailing year, AAL stock is up 34%. Better yet, it has carried the momentum into the new year, with shares gaining 36% since January’s opening session. Despite the choppiness recently, over the trailing month, the price is up around 23%.

Data from the Centers for Disease Control and Prevention provides an even better look. While the numbers are constantly fluctuating as the Covid-19 pandemic is still a dynamic crisis, I think we should take victories as they come. For instance, between Jan. 7 and March 7 of this year, the seven-day moving average case count is down more than 50%.

Does that mean you should go out and be reckless with your health? I believe most medical doctors would say no. However, the decline in cases should incentivize Americans to gradually return to normal behaviors. And that augurs well for AAL stock, along with its rivals like United Airlines (NASDAQ:UAL) and Delta (NYSE:DAL).

Further, it definitely appears that consumers are paying attention. According to enplanement data from the Bureau of Transportation Statistics and air passenger security checkpoint data from the Transportation Security Administration, people are gradually taking to their air.

This doesn’t mean that people are necessarily comfortable flying. However, the public’s cost-benefit analysis is so far skewing favorably toward AAL stock. So is it time to book a flight with your portfolio?

It is like most things in the new normal complicated.

Forecasting Turbulence for AAL Stock

From a percentage-comparison perspective, you can’t help but feel emboldened with the contrarian trade on AAL stock. Yes, certain research indicates that a majority of Americans are concerned about Covid-19 infections. However, the willingness to overcome those fears to cram oneself into a flying cigar with hundreds of other strangers is ultimately a very good sign.

We must also remember that back in April 2020, air passenger volume was down 96% from the year-ago level. Currently, TSA data suggests that we could see March’s travel volume increase sizably.

Again, this is incredibly encouraging news if you’re thinking about AAL stock and especially if you already own it. Still, the main risk factor is that at 50% down from pre-pandemic levels, the volume is not enough to support the airline industry at large. And even if American Airlines survives a potential financial tsunami in the months ahead, it will likely compete for a much smaller consumer base.

Most devastating of all is how much airliners have been impacted by the coronavirus. Let’s just say that March pulls in miraculous numbers to the point where travel demand is down only 40% from pre-pandemic levels. That would still be down below the previous worst-impacted month of air travel data on record – September 2001.

Call me crazy but I think the prospect of terrorists hijacking an airplane and flying it into a building is much more frightening than getting infected with the SARS-CoV-2 virus. With the coronavirus, I have what? A 2% or 3% chance of not making it? Whereas an airborne terrorism event is about a 2% or 3% survivability rate, I’m guessing.

Despite the much more dangerous threat of terrorism, consumers returned to the air far quicker and more resolutely than during this Covid-19 pandemic.

Probably Safer to Take Profits

To be fair, the reason why people don’t want to travel is the difference between frequency and outcome. If a terrorist is on your flight, you’ll probably die. However, the chances of a terrorist being on your flight is very slim.

Conversely, the chances of you dying from Covid-19 is statistically small. And airliners will argue that the chances of infection on board a flight is also small. However, the chances of inflight infection are certainly greater than flying with a terrorist. According to MIT Medical, even “a relatively short domestic flight still carries moderate risks and should not be undertaken lightly.”

Ultimately, what this translates to is that the airliner industry may face several months of sharply reduced travel volume at least. It took about two-and-a-half years following the 9/11 attack for passengers to feel comfortable flying at pre-attack levels.

The above data suggests it may take much more than that for people to feel comfortable. Of course, no one knows for sure. However, when you take into account the economic recession, AAL stock has too many variables for me to feel comfortable, especially at its presently elevated price.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.