American Airlines (NASDAQ: AAL) has released their earnings for Q4 2019.

Revenue came in at $11.31 billion for the quarter which was roughly in line with estimates of $11.33 billion.

EPS for this quarter was $1.15 which slightly missed (-0.9%) analysts’ estimates of $1.16.

The company posted a beat on expectations on profits, posting $414 million for the quarter compared to $325 million for the same quarter last year (+27.38%).

American Airlines Stock Has Been Hammered

Overall, it has been a tough year for American Airlines stock, which is among one of the worst performers in the U.S. airlines industry for the past year compared to its peers.

American Airlines’ EBITDA Margin Has Declined the Most Among its Peers

If we look for more clues as to why American Airlines stock has crashed so much, one thing that stands out is their massive dip on EBITDA margin for the past two years, which is the worst decline among its peers.

Source: YCharts

Boeing’s 737 Max Aircraft Gives Headaches to American Airlines

Analysts blame part of the recent bad stock performance on the grounding of the Boeing 737 MAX jets. American Airlines owns 24 of these jets, which are now non-operational. Weak cargo and freight revenue numbers may also play a factor in negatively impacting the company’s bottom line.

However, one saving grace may be the lower fuel costs that persisted during the quarter which may help American Airlines cut down on costs during the quarter. The lower fuel costs alone is unlikely to help the airline’s stock in the coming future months, however, as news came out recently from Boeing that the grounding of the 737 MAX is going to continue at least until sometime mid-year 2020.

Source: EIA

In contrast, Delta Airlines (NASDAQ: DAL) which does not own any 737 MAX aircrafts, was spared from the huge debacle and have seen their stock jump by more than 20% YoY.

As a result of the declining stock price, American Airlines now trades at the lowest forward P/E compared to some of its peers.

What to Do with Airline Stocks

Any loss in oil supply could cause a spike in price and take the wind out of any airline stock rally.

With oil prices unlikely to go much lower in 2020, but consumer spending on the rise, we think airline stocks will go up with the market, but they will continue to underperform higher growth tech stocks and the consumer discretionary index as a whole. 

This is a cyclical industry and we are deep into a 10+ year economic expansion.

Not to mention the industry has to deal with rising union costs, lost revenue from the grounding of the 737 Max and a softening of demand.

As if these aren’t enough headwinds, airlines are always at risk of a geopolitical situation spinning out of control, causing a spike in oil prices and taking the wind out of any airline stock rally.

You should own airlines at the beginning of an economic recovery, not at the end of an economic boom.

This historical price chart tells the whole story.

Airline Stocks Rebound Hard After Recessions 

Source: YCharts

About Author

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.