Will the reopening be a tailwind for the American Airlines share price?

In 2020, the American Airlines share price [AAL] fell 44.8%. That downward trend reversed in the first half of 2021, with the stock climbing 34.5% to close 30 June at $21.21. The American Airlines share price took off during February and early March, gaining 46.6% to close 15 March at $25.17.

The American Airlines share price then went on to reach new heights, hitting a 52-week high of $26.09 during intraday trading on 18 March. However, the American Airlines share price faced significant headwinds in June, the stock fell 12.5% throughout the month.

Despite this slide, as of 2 July, the American Airlines share price is cruising 71.8% above its level 12 months ago and is up 36.2% in the year to date.

 

Weathering storms

The American Airlines share price has weathered a period of low demand amid the coronavirus pandemic, only to find its business hampered by insufficient supply as travel begins to slowly restart.

According to the Financial Times, the airline briefly furloughed 1,600 pilots amid delays in receiving funds from the US government’s Payroll Support Program, which slowed their return to work as the country’s aviation regulator requires fresh training for them. The impact was compounded by American Airlines retiring 1,000 pilots and 100 aircrafts early.

The additional training this has required has led to staff shortages and the cancellation of hundreds of flights until mid-July. Bad weather has also contributed to the grounding of flights from key hubs without enough pilots on standby to accommodate the disruption.

The airline was warned about the danger the carrier was steering towards, according to the Financial Times. “We were warning them, ‘Hey, this [staffing level] is likely to be very strenuous on us when a weather event happens,” Dennis Tajer, communications committee chair of the Allied Pilots Association (APA) which represents 15,000 American Airlines pilots, said, according to the publication.

The disruption throws American Airlines’ ambitious reopening plans into chaos. The company had aggressive plans to sell only 5% fewer seats in July than in 2019, but as a result, it will be unable to fully capitalise on the surge in demand for flights.

Around 300 flights were cancelled over the weekend of 19 June, according to The Independent, with the airline announcing that another 100 were cancelled on 21 June and 80 were expected daily until 15 July. In total, the airline expects to cancel 1% of its flights during the period.

While American Airlines insists the schedule reduction is a temporary, one-off event this summer, the Philadelphia chapter of the APA this week wrote to pilots saying: “Initial forward-looking data suggests that management has published and sold a schedule through December 2021 that it likely does not have the proper staffing to execute,” Forbes reported.

“Initial forward-looking data suggests that management has published and sold a schedule through December 2021 that it likely does not have the proper staffing to execute” -  Philadelphia chapter of the APA

 

The American Airlines share price responded by rising slightly on 21 June, the stock rose by 0.7% to $22.45, but has gone into a tailspin since, falling 3.6% to close 2 July at $21.48.

While its furlough decision seems to have accentuated the issue for American Airlines, it is not the only airline impacted by the recent spate of bad weather events and is running more flights than any of its competitors despite its struggles. Storms forced Southwest Airlines [LUV] to cancel 281 flights and delay 462 by midday on 24 June.

 

Recovery in full flight

The American Airlines share price has outperformed its main competitors in the year to date (through 2 July), growing 36.2%. In comparison, United Airlines’ [UAL] share price grew 22.1%, while Southwest’s and Delta’s [DAL] were up 15.1% and 9.8%, respectively.

However, the American Airlines share price has struggled comparatively in recent weeks. The stock fell 16.8% in the past month (through 2 July). In comparison, Delta, United Airlines and Southwest were down 7.6%, 12.4% and 11.8%, respectively, in the same period.

In January, Richard Aboulafia, an analyst at Teal Group, predicted airline passenger traffic wouldn’t recover to 2019 levels until the end of 2022, describing himself as an “optimist” in doing so, according to FlightGlobal. Other industry groups such as the International Air Transport Association expected the recovery could take until 2024.

However, airlines have since had cause for optimism, with Memorial Day weekend at the end of May setting a post-pandemic record for American air travel numbers, according to CNBC. American Airlines expects domestic US traffic to reach 90% of 2019 levels this summer. With almost half of Americans now fully vaccinated against COVID-19 and more than half planning to travel this summer, consultancy group Oliver Wyman now expects domestic US travel could recover fully by early 2022.