Is American Airlines on the track for recovery? What to expect for Q4 earnings?

All the airlines had come a long way since the pandemic commenced in early 2020 but still enjoyed some great moments in 2021 before the Omicron turned the market upside down during the last days of the year. Investors for airlines are now eager to get a peek at what lies ahead in 2022?

When will be the report date?

American Airlines Group, Inc. will report its fourth Quarter ending December 2021 on January 20th, 2022, before the market opens.

What to expect for Q4 earnings?

Although it won’t be a surprise that the earnings for AAL will remain in the negative zone, the final reading is expected to be slightly better than the market’s previous forecast. American Airlines said earlier this month that it expected total revenue to be 17% down to the pre-pandemic level in 2019 compared to the projected 20% lower.

Based on this, a year-over-year growth of 53.89% will be marked together with a 124.7% increase in quarterly revenue, approximately $9.05 billion.

EPS forecast for the quarter is around $-1.78, substantially improved from the reported EPS same period last year ($-3.86), but on the back foot from Q2 and Q3 earnings.

^{Source: Zacks Investment Research}

^{Source: https://www.nasdaq.com/market-activity/stocks/aal/earnings}

The impact by Omicron

The threat of Omicron variants and renewed travel restrictions that it brings has cast a shadow on the airline's recovery journey.

On the bright side, American Airlines' cancelation rate was just 3% of flights between Dec. 26 and Jan. 9 according to data from flight-tracking website FlightAware.com. That’s an impressive number compared to 8% of all U.S. domestic and international flights which were cancelled over the same period.

However, if compared with AAL's peer Delta, the airline still has a long way to go before a "recovery" can be called. Delta Airlines, which was reported to earn 22 cents per share for the fourth quarter, has delivered the airline's second consecutive profitable quarter amid the Omicron crisis.

The biggest threat to American Airlines' recovery now will undoubtedly be the soaring costs, primarily due to the escalating labour shortage: for example, the company has to offer employees a range of incentives to work during the holidays. In addition to that is a higher long-term debt load, a 20% increase during the Q3 quarter, double its current asset size, will likely need longer than its rivals to clean up.

Overall, American Airlines appeared to move in the right direction amid the Omicron crisis. However, the fast-changing challenges with any emerging new variant could delay the rebound. Moreover, from a longer-term perspective, the most patient investors would still like to see more materially improvement on the airline's balance sheet to fundamentally prepare for the endemic period.

Technical Analysis

From a technical standpoint, the share price for AAL had walked out from the bottom in December when the Omicron fear severely struck the market. As a result, an upward-moving trajectory has been formed to eye on the $20 key level should the market welcome the Q4 earnings. On the other hand, any upcoming selling pressure will pull the price back to its 20-days moving average and declare a failure to fill the gap between $18.29 and $19.07. In that case, the gap level will continue to play as key resistance for AAL's share price.

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