Will American Airlines' Operating Margin Remain Under Pressure?

American Airlines AAL has struggled with respect to a key metric, operating margin, which indicates how efficiently a company manages its operating costs, such as labor and other expenses related to production and sales. Operating profit is the amount of profit a company generates from its primary business activities. 

American Airlines reported an operating margin (on an adjusted basis) of 7.6% in 2023 and 6% in 2024. Even though operating margin improved to 8.2% in the second quarter of 2025, from a negative value in the March quarter, management expects the key metric to remain subdued in the third quarter due to subdued revenues and high costs. AAL expects its third-quarter adjusted operating margin to be in the range of negative 1% to positive 2%. Our estimate is currently pegged at 0.9%.

Total revenues are likely to be either down 2% or increase 1% from year-ago levels. Tariff-related uncertainty is likely to hurt passenger volumes. Cost per available seat miles (adjusted) in the September quarter is expected to increase in the 2.5-4.5% range from third-quarter 2024 actuals. 

We expect operating costs (adjusted) to increase more than 3% in 2025 from 2024 levels. Labor costs are very high and are expected to be so going forward. The deal inked with pilots is leading to the uptick in labor costs. Since trade unionism is quite robust in this industry, it is hard to keep a check on wage increases. Salaries, wages and benefits have increased 9.9% in 2024 and are expected to increase more than 8% in 2025.

How Do AAL’s Margins Compare With Some Other Airlines?

Delta Air Lines DAL reported an operating margin (on an adjusted basis) of 13.2% in the second quarter of 2025, lower than the year-ago figure of 14.7%. The U.S. airline expects adjusted operating margins in the 9-11% band in the third quarter of 2025. Given the economic uncertainty, DAL is focusing on reducing planned capacity growth apart from actively managing costs and capital expenditures to drive margins this year.

Copa Holdings CPA has been able to sustain operating margins of more than 20%, making it one of the most profitable airlines globally. For example, the carrier reported an operating margin (on an adjusted basis) of 23.5% in 2023 and 21.9% in 2024. Management expects the carrier to end 2025 with an adjusted operating margin in the 21-23% range. Our expectation of 22.5% is at the higher end of the company’s guided range.

AAL’s Price Performance, Valuation and Estimates

Shares of AAL have lost 8.4% in the past six months, underperforming its industry’s 13.1% uptick in the same timeframe.

From a valuation perspective, AAL appears undervalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.15, lower than the industry’s 0.69.

The Zacks Consensus Estimate for AAL’s third-quarter 2025, fourth-quarter 2025 and full-year 2025 EPS has moved up in the past 60 days.

AAL's Zacks Rank

AAL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

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This article originally published on Zacks Investment Research (zacks.com).

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