American Airlines (AAL)

Global airline American Airlines (NASDAQ:AAL) met Wall Street’s revenue expectations in Q3 CY2025, but sales were flat year on year at $13.69 billion. Its non-GAAP loss of $0.17 per share was 38.2% above analysts’ consensus estimates.

Company Overview

One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ:AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Competitors in the air carrier space include Delta Air Lines (NYSE:DAL), JetBlue Airways (NASDAQ:JBLU), and Southwest Airlines (NYSE:LUV).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, American Airlines’s 17.1% annualized revenue growth over the last five years was decent. Its growth was slightly above the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. American Airlines’s recent performance shows its demand has slowed as its annualized revenue growth of 1.3% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its number of revenue passenger miles, which reached 66.58 billion in the latest quarter. Over the last two years, American Airlines’s revenue passenger miles averaged 4.4% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen.

This quarter, American Airlines’s $13.69 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.3% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

American Airlines’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 4% over the last two years. This profitability was lousy for a consumer discretionary business and caused by its suboptimal cost structure.

This quarter, American Airlines generated an operating margin profit margin of 1.1%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

In the coming year, Wall Street expects American Airlines to maintain its trailing 12-month operating margin of 4%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

American Airlines’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q3, American Airlines reported adjusted EPS of negative $0.17, down from $0.30 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects American Airlines’s full-year EPS of $1.05 to grow 38.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

American Airlines broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

American Airlines burned through $872 million of cash in Q3, equivalent to a negative 6.4% margin. The company’s cash burn increased from $191 million of lost cash in the same quarter last year.

Over the next year, analysts predict American Airlines’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 1.6% for the last 12 months will increase to 0.9%, it options for capital deployment (investments, share buybacks, etc.).

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

American Airlines historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, American Airlines’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

American Airlines’s $36.06 billion of debt exceeds the $6.86 billion of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $4.21 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. American Airlines could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope American Airlines can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by American Airlines’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 3.4% to $12.48 immediately after reporting.

Updated: December 4, 2025 at 10:40 PM EST

Before investing in or passing on American Airlines, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

American Airlines doesn’t pass our quality test. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its number of revenue passenger miles has disappointed. On top of that, its Forecasted free cash flow margin for next year suggests the company will fail to improve its cash conversion.

American Airlines’s P/E ratio based on the next 12 months is 8.6x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $15.16 on the company (compared to the current share price of $14.34).