American Airlines AAL is benefiting from an uptick in air travel demand (particularly on the leisure front). This upsurge in passenger volumes makes AAL stock an attractive investment opportunity currently.

Let us delve deep to unearth the factors working in favor of this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

Favorable Earnings & Sales Estimate Movements: The Zacks Consensus Estimate for 2025 earnings, currently pegged at $2.22 per share, has been revised 16.2% upward in the past 60 days. The Zacks Consensus Estimate for 2025 sales, currently pegged at $56.67 billion, indicates 5.1% growth from the 2024 expectations. The Zacks Consensus Estimate for 2025 earnings per share implies 32% growth from the 2024 expectations.

AAL’s Upbeat Passenger Volumes: Improvement in air travel demand following the end of the pandemic bodes well for American Airlines' top line. While air travel demand is particularly strong on the leisure front, business travel has also made an encouraging comeback. Owing to buoyant air-travel demand, American Airlines posted a year-over-year increase (2.1%) in revenues during the first nine months of 2024. Passenger revenues are expected to have been strong in the fourth quarter of 2024 as well, owing to healthy passenger volumes, particularly during the Thanksgiving holiday period.

Low Fuel Costs: The southward movement of oil price bodes well for the bottom-line growth of AAL. This is because fuel expenses are a significant input cost for airlines. Notably, oil prices declined 14% in the July-September period mainly due to the weakening global demand. China's economy, the world’s largest oil importer, struggled with a slowdown in manufacturing, shrinking for the fifth consecutive month by September. In the third quarter of 2024, expenses on aircraft fuel and taxes at AAL decreased 10.4% year over year to $2.87 billion. Average fuel price per gallon (including related taxes) decreased to $2.50 from $2.91 a year ago.

Impressive Price Performance of AAL: Driven by the rosy air travel demand scenario, shares of AAL have gained 56.8% in the past six months against its industry’s decline of 39.6%.

Six-Month Price Comparison

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AAL’s Compelling Stock Valuation: From a valuation perspective, American Airlines is still trading cheaper than the industry. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.21X, lower than the industry average of 1.19X. The company has a Value Score of A.

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Bullish Industry Rank: The industry, to which AAL belongs, currently has a Zacks Industry Rank of 15 (of 248 groups). Such a solid rank places the industry in the top 6% of the Zacks industries. Studies have shown that 50% of a stock price movement is directly tied to the performance of the industry group that it hails from.

In fact, an ordinary stock in a strong group is likely to outperform a robust stock in a weak industry. Therefore, taking the industry’s performance into consideration becomes imperative.

Other Airline Picks

Investors interested in the Zacks Airline industry may also consider Southwest Airlines LUV and SkyWest SKYW. Both stocks currently sport a Zacks Rank #1.

Southwest Airlines is based in Dallas, TX.  Improvement in air travel demand bodes well for Southwest Airlines' top line. LUV’s solid balance sheet allows the company to reward its shareholders through share buybacks and dividend payments.

LUV has an expected earnings growth rate of 105% for 2025. The Zacks Consensus Estimate for 2025 earnings has been revised 5.3% upward in the past 60 days. 

SkyWest, founded in 1972, is based in St. George and operates regional jets for major U.S. airlines. SKYW’S track record of successfully meeting the requirements of each of its airline heavyweight partners bodes well for the company. Revenues from flying agreements (which account for the bulk of the top line) are impressive owing to SKYW’s above ability. Owing to an uptick in air travel demand, passenger volumes have been upbeat and are likely to increase going forward as well. This is likely to keep SKYW's top line in good shape.

SKYW has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 79.1%. The Zacks Consensus Estimate for 2025 earnings per share has been revised 5.3% upward in the past 60 days.

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