Shares of American Airlines (NASDAQ: AAL) have been in a tailspin, plunging nearly 19% in the past week as BofA Securities lowered its price target from $20.00 to $16.00 while maintaining a Neutral rating. This revision follows American Airlines’ recent announcement of a 4% decline in first-quarter 2025 revenue, a drop that analysts say was less severe than expected despite ongoing operational challenges, including the Flight 5342 accident.
Lowered Earnings Estimates Amid Industry Challenges
BofA analyst Andrew Didora adjusted his first-quarter 2025 earnings per share (EPS) estimate to $(0.70), aligning with the midpoint of American Airlines’ revised guidance. The airline’s full-year 2025 EPS projection has also been downgraded from $2.60 to $2.30, reflecting revised revenue growth expectations and reduced fuel costs. American Airlines’ price-to-earnings (P/E) ratio currently stands at 9.1x, underscoring its significant role in the passenger airline industry.
The valuation multiple used for pricing AAL stock has also been revised downward to 5-5.5x, from the previous 5.5x, signaling concerns over slower revenue growth and increasing competition in the airline sector.
Airline Sector Faces Growing Pressure
American Airlines is not alone in facing headwinds. Delta Air Lines (NYSE: DAL) has revised its first-quarter profit forecast downward, cutting its revenue growth outlook from 7-9% to 3-4% due to weaker consumer and corporate confidence, leading to a decline in domestic demand. Similarly, Southwest Airlines (NYSE: LUV) recently lowered its unit revenue guidance and made headlines by ending its long-standing free-checked-bag policy as it searches for ways to offset revenue declines.
Despite the gloomy outlook, Citi analysts have maintained a Buy rating on AAL, though they too have lowered their price target to $21.50 from $23.00. Their revision is driven by projected declines in revenue per available seat mile (RASM) and an anticipated reduction in fuel costs.
Broader Market Impact on Travel Stocks
The turbulence in the airline industry has sent ripples through the broader travel sector, with major players like Expedia (NASDAQ: EXPE), Booking Holdings (NASDAQ: BKNG), and Airbnb (NASDAQ: ABNB) seeing declines in their share prices. This downturn was triggered by Delta’s revenue forecast cut, casting uncertainty over the entire travel and hospitality industry.
Investor Sentiment and Outlook
With American Airlines warning of a larger-than-expected Q1 loss, investors are bracing for further volatility in airline stocks. The industry’s struggles highlight broader economic concerns, including declining leisure travel demand and shifting consumer sentiment. As earnings season approaches, all eyes will be on how airlines navigate these challenges and whether the sector can regain altitude in the coming months.
