FB: American Airlines improved revenue quality despite fuel-price pressure

Freedom Broker analysts raised their target price for American Airlines Group Inc. (AAL) shares from $16 to $20 and reaffirmed their “Buy” rating. At the current price of $14.9 the upside potential is about 34%. Despite a deterioration in the profit outlook due to a sharp rise in jet-fuel costs, experts believe the market is underestimating the structural improvement in the airline’s business.

American Airlines Group Inc. (AAL) is one of the world’s largest airlines, operating domestic and international flights to more than 350 destinations. The company is actively developing its premium segment, corporate travel and the AAdvantage loyalty program (offering rewards and the ability to earn miles), while reducing leverage and modernizing its route network.

American Airlines’ revenue growth is becoming higher quality

According to Freedom Broker analysts, the key takeaway from the quarter was not so much beating market expectations as the change in American Airlines’ income structure.

The company’s revenue-generation mechanism is working noticeably better than in previous periods. The stock remains a bet on management’s ability to turn unit-revenue growth into sustainable margin expansion through cost control, balance-sheet strengthening, premium-segment development and route-network optimization, the experts note. Analysts also expect the oil market situation to gradually stabilize next year, which should ease pressure on the carrier’s profitability.

Record revenue topped expectations

In the second quarter, American Airlines posted record quarterly revenue of $16.7 bn, up 16.3% year over year. Adjusted earnings per share came in at $0.15, down 84.2% y/y but beating the analyst consensus by $0.03. GAAP net income reached $71 mn, and adjusted net income was $99 mn.

Growth was driven by virtually all key business lines. Revenue from domestic passenger traffic rose 17.1% to $10.7 bn, while PRASM (passenger revenue per available seat mile) in the domestic market increased 10.6%.

International operations also showed solid momentum. PRASM on transatlantic routes rose 8.9%, on Pacific routes 15.1%, and in Latin America 6.6%. The company’s management separately highlighted Latin America as one of the key growth drivers thanks to strong demand and route-network expansion.

The premium segment is becoming a new driver

Freedom Broker analysts consider the shift in demand structure particularly important. Revenue in the premium segment grew 13.4%, versus 8.8% in the main cabin. Revenue from corporate clients jumped 26%, and the number of registrations in the AAdvantage loyalty program increased by more than 30%. Spending on Citi co-branded cards rose 8%. According to management estimates, nearly 60% of the company’s revenue today comes from passengers with annual incomes above $150k, making the demand profile more resilient.

Fuel remains the main risk factor

The main negative factor in the quarter was the rapid rise in jet-fuel costs. Fuel expense and related taxes increased to $4.9 bn (+83.3% y/y), and the average fuel price rose 77.1% to $4.05 per gallon. As a result, operating expenses increased 22.9% to $16.3 bn, and operating margin narrowed from 7.9% to 2.7%.

The company also lowered its profit outlook for 2026. American Airlines now expects an adjusted result in a range from a loss of $0.65 to a profit of $0.65 per share, versus the prior range of -$0.40 to +$1.10.

Why analysts remain positive

Despite the weaker short-term outlook, Freedom Broker analysts view the company’s investment case as attractive. American Airlines continues to reduce leverage, expand its international network, increase the number of premium seats, modernize its aircraft fleet and develop its loyalty program. In the experts’ view, the market is currently factoring in short-term pressure from high fuel prices more than the fundamental improvement in business quality and the company’s ability to generate cash flow.

Against this backdrop, analysts raised American Airlines’ target price to $20 and maintained their “Buy” rating. At the current price of $14.9, the upside potential is about 34%.

Target price dynamics

American Airlines is steadily strengthening its positions in key business areas. Based on results for the first quarter of 2026, the airline already exceeded market expectations for revenue and narrowed its adjusted loss. At that time, management noted resilient demand for air travel and the first reduction since 2015 in the company’s total debt below $35 bn, but pointed to risks related to capacity expansion amid volatile fuel prices. After the quarterly report was released, experts kept a “Buy” rating, although they cut the target price to $16 due to worsening short-term conditions in the fuel market.

In recent months, American Airlines has also continued to invest in improving customer service and digital infrastructure. In May, the carrier announced it will equip more than 500 narrow-body aircraft with Starlink satellite internet, which should improve passenger service quality starting in 2027.

Not an individual investment recommendation.