In a recent note, Citi analyst Stephen Trent expressed his thoughts on American Airlines Group Inc.'s (AAL) new agreement with its pilots, describing it as a "mixed result for the carrier." While the deal may help reduce risks related to labor disputes and staff availability, Trent pointed out that the increase in operational costs should not be overlooked. This cost increase comes at a time when the demand for domestic flights is showing signs of moderation in the short term.
Limited exposure to international long-haul routes is another factor that could affect American Airlines' earnings, as its competitors continue to benefit from revenue generation in this area. Trent noted that the impact of this agreement on American's earnings will depend on whether the anticipated seat mile cost pressure can be offset by potentially higher block-hour utilization.
Earlier on Monday, the airline's pilots ratified the contract, further solidifying the agreement. Following this news, American's shares remained flat during the extended trading session, after experiencing a modest increase of 0.8% during regular trading hours. Citi currently has a hold rating on American's stock.
Evaluating the Pros and Cons
While the agreement brings some advantages in terms of labor relations and staff availability, it does come with an increase in operational costs. Considering the current moderation in domestic flight demand, it remains to be seen how this will impact American Airlines' overall financial performance. Additionally, the airline's limited exposure to international long-haul routes puts them at a disadvantage compared to competitors who are benefiting from robust revenue generation in this segment.
Pilots Solidify the Agreement
To strengthen the newly established agreement, American Airlines' pilots ratified the contract on Monday. This signifies a crucial step towards implementing the terms of the deal and establishing a positive working relationship between management and pilots.
Stock Performance and Analyst's Recommendation
Despite the announcement of the new agreement, American Airlines' stock remained relatively unchanged during after-hours trading. Citi's current hold rating suggests a cautious stance on the stock, acknowledging the mixed implications of the deal.
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