The airline industry has a low-profit margin compared to other businesses. A low profit per passenger count makes a staggering company. In 2017 the average profit margin of the industry was $18 per passenger. In the same year, the AAL had a ten-dollar profit margin on each passenger.
Shareholders and Stocks
The data proves that the company is at the lower end in gaining profits. The main reason behind it is the debt it had incurred for a long time. In 2001, after the post-recession period, the company had filed for bankruptcy, struck by debts and recession. Low seat occupancy also contributed to the end. But they managed to escape going under by merging with U.S. Airlines. At that point, the AAL stock price was at $20 per share. In the case of an exit bankruptcy filing, the investors hold high chances of getting wiped out as they last on the list to get paid.
Most of the shareholders get rid of the stocks of a company that is going under. If not done so, they run a risk of losing all their investment. But in the case of AAL, the shareholders gained a lot of profits as it merged with U.S. Airlines. After the merger, they brought more stocks into the company. American Airlines has a long-term debt of 21.5 billion in the current scenario, while its competitor’s debts remain below 15 billion.
When you have such huge debts, the period of staying afloat decreases.
Current Scenario
The Senate has passed a 50 billion airline bailout, and off that money, American Airlines could get about 20 billion as federal assistance. They have currently accepted an economic bailout package of about 6 billion dollars from the U.S. government. The stock prices have risen over the last few months, even though it has been slow. This lifeline rules out any immediate threats of bankruptcy to the company.
Everything depends on how long the company bleeds money. Before planning to buy any shares in the company, do not forget that it has gone through the same situation nine years back. Also, keep in mind the current AAL stock price. Based on the situation, you can only guess the after effects of buying shares. The company might overcome the situation and come out well. The shares could multiply on the one hand, or they could just as easily go down.
Sum up
In case of bankruptcy, all the shares will become worthless, and you lose all the Investments. If you want to go for a safer option, choose other airline companies. The stakes are high but if you’re comfortable with the risks, go ahead. You can check other information like income statement at https://www.webull.com/income-statement/nasdaq-aal.
Disclaimer: The analysis information is for reference only and does not constitute an investment recommendation.