American Airlines Group, Inc. (NASDAQ:AAL), reported its second quarter fiscal 2020 results earlier today that beat analyst estimates, causing shares to trade higher pre market.

The company generated $1.62B of revenue, above analyst estimate of $1.519B by 7%, but was down 86% year-over-year.

Earnings per share were a loss of ($7.82)/sh, slightly above the street estimate of ($7.9)/sh by a margin of 1%

The company’s EBITDA loss was -$1.92B, 28% higher than the consensus estimates of -$2.64B. This was partly due to the fact that fuel expenses were 81.1% lower year-over-year.

The virus caused lockdown has brought down its total load factor to 43.4% compared to 73.9% in the last quarter, and 88% in the last year’s same period.

Valuation Breakdown

Being limited to only essential travel and complete travel bans in other regions worldwide due to the pandemic, the airline industry became out of favour with investors as shown below.

Due to the decimated demand for travel in recent months, Amercian along with its peers saw its revenues tank.

Due to this reason, American’s passenger revenue per available seat for the reported quarter was $6.48, which was 45% lower year-over-year and 39% lower quarter-over-quarter.

As a result in order to continue operating, American raised its debt levels making it very close to being insolvent.

As shown below, American is the most levered compared to its peers.

This risk factor is a key reason as to why its price to earnings multiple is worth the lowest in the industry.

Earlier this month, the company announced that it would resume booking flights to full capacity causing backlash by public health officials.

But given that it has nearly 10 quarters of cash and equivalents left based on its reported earnings, this decision would seem a bit unnecessary at the moment, but when considering the fact that it is highly levered (67.19% Debt/Net Assets), the incoming revenue could help the company hold together its risky financial position.

However, since lately the US has seen a new spike in virus cases, the airline company could face growing pressure by health officials and even the public to reduce its capacity to acceptable levels.

Due to this reason, it would be wise for investors to hold off on investing into this company until the pandemic related uncertainties are subsided.

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