AMERICAN AIRLINES (AAL)American Airlines (AAL)

AGENDA

Industry Analysis

Company Analysis

Company Fundamentals

Chart Analysis

Competitors

Competitive Analysis

Final Recommendation

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INDUSTRY ANALYSIS (AIRLINE INDUSTRY)

http://www.nasdaq.com/article/airline-industry-stock-outlook-dec-2013-industry-outlook-cm310424

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Overview Of Airline Industry in USA

With a Zack’s industry rank of #16, and expected profit growths, the airline industry looks strong for the next few years.

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100 certified passenger airlines operating over 11 million flight departures per year

Accounts for about 1/3rd of global air traffic 815.3 million scheduled passengers traveled on

USA airlines in 2012. Commercial aviation contributes more than 8% of

USA’s GDP.

The number of passengers will grow to 1.2 billion in 2032, according to the FAA's annual forecast.

Carriers expected to make a profit of $6.3 billion in 2014

US Airline Industry to remain profitable for two more decades

Oil price volatility remains a significant challenge

http://www.nasdaq.com/article/airline-industry-stock-outlook-dec-2013-industry-outlook-cm310424#ixzz2vEkdMZEL

Industry Outlook

COMPANY ANALYSIS (AMERICAN AIRLINES)

http://en.wikipedia.org/wiki/American_Airlineshttp://hub.aa.com/en/nr/pressrelease/american-airlines-group-reports-december-traffic-resultshttp://hub.aa.com/en/nr/pressrelease/american-airlines-group-reports-fourth-quarter-and-full-year-2013-financial-results 4

Overview

A recent merger has helped an otherwise bankrupt AAL re-emerge in the airline market, with a higher market share and more efficient trips and PRASM, RPM Values.

eBay

PRASM (Passenger Revenue per Available Seat Mile) in Dec 2013 increased 9% YoY

RPM’s (Revenue Passenger Miles) increased by 11.9 billion (5%) YoY from Dec 2012.

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Revenue & Market Share

Recent merger with US Airways has re-established AAL as a leader in airline industry in USA

New Parent Company (American Airlines Group) Based out of Fort Worth, TX. 626 fleets with 273 destinations at the moment Stock price up 58.2% since merger and relisting in

December 2013

Improvements From 2012

COMPANY FUNDAMENTALS

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Essential Statistics

Consistently Rising Revenues, but negative net profit margin.

Beta: 2.91 Current Ratio: 1.04 Quarterly Revenue YoY Growth: 24.1% Forward P/E: 7.38 Market Cap: $18.4 billion (Large Company) Average Volume: 8.7m/ 10 days

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CHART ANALYSIS

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Source: Google Finance

COMPETITORS

Source: Google FInance

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Main Competitors

Delta, Alaska, United and Southwest are AAL’s major competitors.

Revenue YoY Change

Delta Airlines and United Continental hold largest market shares ahead of AAL.

ALK, DAL and HA experiencing consistent, fast-paced growth.

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AAL: 7.60%United: 3.03%Southwest: 3.58%

COMPETITIVE ANALYSIS

Source: Bloomberg, Wikipedia

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Competitive Analysis

The positive synergies from the merger are likely to fully surface by 2015.

Catalysts

Positive synergies after merger World’s largest airline with greatest US

market share by revenue (28.7%) Larger customer platform

Inducted 13 new Airbus A320 family aircraft, 2

Airbus A330-200 aircraft, 5 Boeing B737-800 and 1

Boeing B777-300 aircraft into its fleet in 2013 Began more international nonstop flights, whilst

most domestic airlines provide short domestic

flights New seasonal summer services to key

holiday destinations: Spain, England,

Belgium, and Portugal from Charlotte, NC Partnership with Oneworld Airlines

Key partners including British Airways,

Malaysia Airlines, Qatar Airways

Delays in integration after merger have been or are in the process of being solved

Completed technology fixes to let fliers book trips on both its American and US Airways units

Adding seats on some jets More revenue generation through addition

of fee-based services such as early boarding and more legroom

CEO Doug Parker expecting $1 billion in new revenue and savings by 2015

Significantly speedier at reaping positives after transaction than industry comparables such as merger between Delta and Northwest (3 years to reach $1 billion milestone)

2014E annual profit at $3.5 billion (Bloomberg analysts)

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FINAL RECOMMENDATION

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Recommendation for AAL

Considering the positive outlooks for the US airlines industry and AAL in particular, the final recommendation is BUY.

Positive synergies, in particular breaking the $1 billion milestone in revenue and costs synergies, are

expected to fully surface by 2015

Hence, steady long term revenue growth to be expected during integration process

Although AAL’s forward P/E ratio is at 7.38 which is considerably lower than its competitors, investors are

gaining more confidence in positive analysts’ estimates, and the stock’s P/E is expected to increase

Expectations for US airlines as a whole are high for 2014 as the economy improves

Final recommendation for AAL: BUY

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