American Airlines Group Inc. (NASDAQ: AAL) shares continued their downward trajectory in premarket trading on Tuesday, sliding 2.05% to $14.34, despite a bullish analyst call from Morgan Stanley. The airline's removal from the Dow Jones Transportation Average, effective June 1, and persistent concerns over fuel expenses are weighing heavily on investor sentiment.
Analyst Upgrade vs. Market Reality
Morgan Stanley raised its price target on American Airlines to $24 from $20, maintaining an Overweight rating. The new target implies a potential 67% upside from Monday's close. However, traders remain skeptical, focusing on the company's fundamental challenges rather than the analyst's optimism.
Fuel Costs Continue to Bite
Fuel remains the primary headwind for the airline sector. Brent crude oil slipped 1.6% to $93.46 a barrel on Tuesday, while West Texas Intermediate fell 1.6% to $90.73. Despite the slight pullback, prices remain elevated, pressuring airline margins. JetBlue Airways also raised its second-quarter fuel cost outlook on Monday, citing disruptions in the Strait of Hormuz, sending its shares down 9%.
American Airlines CEO Robert Isom attempted to reassure investors last week at a Bernstein conference, reaffirming the company's full-year guidance despite projecting an additional $4 billion to $5 billion in fuel costs for 2025. Isom noted that the airline is approximately 80% booked for the second quarter, with corporate travel rising 13% year-over-year and leisure demand remaining "incredibly" strong.
Mixed Financial Signals
American Airlines reported record first-quarter revenue of $13.9 billion in April, but posted a GAAP net loss of $382 million. For the full year, the company expects adjusted earnings per share ranging from a loss of $0.40 to a profit of $1.10, with the midpoint roughly flat compared to 2025 after absorbing over $4 billion in additional jet fuel costs.
Balance Sheet Moves
In a May 29 filing, American Airlines announced it refinanced $1.1468 billion in existing term loans and added $703.2 million in new term loans, extending the maturity of the combined 2026 term loans to May 2033. The loans carry interest at either a base rate plus 2 percentage points or SOFR plus 3 percentage points.
Index Removal and Competitive Landscape
American Airlines was removed from the Dow Jones Transportation Average on June 1, replaced by FedEx Freight. The index's price-weighted methodology meant American's low stock price had minimal influence, with its weighting falling below 0.5%. The airline continues to lag behind rivals Delta Air Lines and United Airlines in profitability, with Isom citing premium seating, stronger hubs, and loyalty revenue as key areas for improvement.
Outlook
Crude oil prices remain the critical risk factor for American Airlines. If oil continues to rise or if higher fares deter price-sensitive travelers, the company may struggle to offset fuel costs quickly enough. Weak bookings could transform its recent debt refinancing from a strategic advantage into a warning sign about the airline's heavy fixed cost structure in a volatile market.
