How Should You Play AAL Stock Post the Narrower-Than-Expected Q1 Loss?

On April 24, American Airlines AAL reported narrower-than-expected loss per share for the first quarter of 2025.  However, the loss widened on a year-over-year basis. Revenues surpassed the Zacks Consensus Estimate despite the tariff-induced uncertainty. 

The narrower-than-expected loss meant that AAL maintained its earnings surprise record, having surpassed estimates in each of the last four quarters.

American Airlines Price and EPS Surprise

American Airlines price-eps-surprise | American Airlines Quote

AAL expects earnings per share to be between 50 cents and $1 in the second quarter of 2025. However, given this uncertain scenario, AAL decided against giving guidance for a longer period and withdrew its 2025 financial guidance. Management stated that it would provide an update later in the year as visibility improves. 

With air travel demand on the domestic front slowing down, led by the tariff-induced weakening of consumer confidence, AAL is not the only player in the Zacks Transportation- Airline industry to withdraw its full-year guidance. Delta Air Lines DAL, while kicking off the first-quarter 2025 earnings season on April 9, had also withdrawn its outlook for 2025 due to the uncertainty. Southwest Airlines LUV, which, like AAL, reported its first-quarter 2025 earnings on April 24, also did not reaffirm its guidance for earnings before interest and taxes for 2025 and 2026. Southwest Airlines’ management stated that “Amid the current macroeconomic uncertainty, it is difficult to forecast given recent and short-lived booking trends.”

(See the Zacks Earnings Calendar to stay ahead of market-making news.) 

American Eagle Flight 5342’s Mishap Also Hurt Q1 Results

In the first quarter of 2025, AAL’s operating revenues decreased 0.2% year over year to $12.55 billion. Passenger revenues, accounting for 90.8% of the top line, decreased 0.6% year over year to $11.4 billion. 

Apart from the well-documented tariff-induced slowdown in domestic air travel demand, results were also hurt by the American Eagle flight 5342 mishap. American Eagle, encompassing regional carriers, is a subsidiary of AAL.

On Jan. 29, an AAL regional jet collided with a U.S. Army helicopter in Washington, DC. The collision with a military helicopter killed all 64 people on board. Three people who were aboard the helicopter also died. This was the first major commercial airline crash since 2009. The aircraft went down in the Potomac River, breaking into multiple pieces. 

The flight data and cockpit voice recorders were recovered following the deadly midair collision. The National Transportation Safety Board led the investigation into this deadly crash.

What Do Earnings Estimates Say for AAL?

Despite the narrower-than-expected loss, annual earnings per share estimates for 2025 and 2026 have moved south over the past seven days. The uncertainty, which resulted in AAL withdrawing its 2025 outlook, has caused the southward movement.

AAL’s Dismal YTD Price Performance

Even though AAL’s share price has not seen any appreciable change since its April 24 earnings release, the stock has declined in double digits so far this year, mainly due to the tariff-induced slowdown in domestic air travel demand. Due to the same reasons, other airline heavyweights like Delta Air Lines and Southwest Airlines too have also performed dismally, underperforming the industry.

AAL's YTD Price Comparison

Image Source: Zacks Investment Research

American Airlines Valuation is Tempting

From a valuation perspective, AAL is trading at a discount compared with the industrial levels, going by the forward 12-month price-to-sales ratio. The company has a Value Score of A. AAL’s reading is lower than Delta Air Lines and Southwest Airlines.

AAL’s P/S F12M Vs. Industry, DAL & LUV

Best to Avoid AAL Stock Now

There is no doubt that AAL stock is attractively valued. Low fuel costs also bode well for the company’s bottom line (expenses on aircraft fuel and related taxes were down 13.2% year over year in the first quarter of 2025), as fuel expenses are a significant input cost for any airline company. Crude oil has been struggling in 2025, with prices sliding to multi-month lows. Tariff concerns, weakening consumer confidence and production increase by OPEC+ have all contributed to this downward pressure. 

However, near-term headwinds led by the tariff-induced slowdown in domestic air travel demand cannot be ignored. The lack of clarity caused AAL to withdraw its full-year guidance. High labor costs (expenses on salaries and wages were up 9.2% year over year in the first quarter of 2025) and declining earnings estimates also do not help matters. 

Given the current turbulence, we can safely say that despite AAL's narrower-than-expected loss in the March quarter, it is not at all advisable to buy the stock now. Until there is more clarity, investors should avoid American Airlines stock.

AAL currently carries a Zacks Rank #5 (Strong Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research