American Airlines Group (AAL) faces headwinds as Bernstein analysts downgrade their outlook on the carrier.
The investment firm has lowered its rating from Outperform to Market-Perform and slashed the price target from $18 to $12, citing significant challenges in AAL's commercial recovery.
Once viewed as a potential catch-up story in the airline industry, American Airlines now grapples with several obstacles that cast doubt on its long-term investment prospects. The company's new "modern retailing" system, designed to enhance direct fare distribution, has backfired. The initiative led to a reduction in sales staff and alienated travel agents and corporate clients, pushing them towards competitors.
While rehiring sales personnel is a relatively quick fix, rebuilding damaged relationships with customers may prove more complex and costly. This setback is expected to hinder AAL's participation in the anticipated second-half pricing upswing across the industry.
Further complicating matters, an impending agreement with flight attendants is likely to increase costs, potentially slowing future earnings growth. The airline has also been losing market share in high-value business segments due to the unwinding of a key partnership.
These challenges have reignited concerns about American Airlines' substantial debt load. Although much of this debt is asset-backed due to the carrier's younger fleet, it remains a point of contention, especially as earnings forecasts are being revised downward and the airline struggles with commercial execution.
Given these factors, Bernstein suggests that investors may find better risk-adjusted opportunities elsewhere in the airline industry.
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