Citi hikes American Airlines to Buy amid ‘superior positioning’ in post-Covid environment By

© Reuters. Citi hikes American Airlines to Buy amid ‘superior positioning’ in post-Covid environment

Shares of American Airlines (NASDAQ:) rose around 1.5% in premarket trading Monday after the stock received an upgrade from Citi analysts from Neutral to Buy, and raised the target price from $15.13 to $20.

Analysts at Citi said North American network carriers seem better positioned in the post-pandemic landscape due to their diversified sources of revenue and strong demand for premium cabin services.

“Against this supportive backdrop, American’s ongoing deleveraging focus and continued low
capex, along with protracted industry capacity constraints, should continue to support the likes of American Airlines,” they wrote.

The company’s major investment of $31 billion in its fleet leading up to the pandemic appeared to have placed the carrier in a more challenging position compared to its network peers. However, as the situation evolves, the airline’s fleet renewal requirements are expected to remain lower for an extended period, surpassing earlier expectations, Citi said.

Furthermore, the management’s commitment to prioritize debt reduction suggests a low-risk approach to deploying capital over the next two to three years.

Compared to 2019, fewer consumers now maintain a strict Monday-Friday office presence, leading to a decline in the “fly out Sunday night, fly home Thursday night” routine. This shift towards blended travel has increased the demand for Economy+ type cabin offerings.

Also, major airlines and their loyalty programs have become increasingly appealing partners for big banks’ co-branded card programs.

As for the target price hike, Citi foresees a change in the target price due to expectations of higher revenue per available seat mile (RASM) alongside lower available seat mile (ASM) growth. Further, there is an anticipated increase in the ’24E ex-fuel cost per available seat mile (CASM), excluding fuel expenses, among other factors.