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Should You Drop American Airlines from Your Portfolio Now?

On Apr 5 2016, Zacks Investment Research downgraded airline transport carrier American Airlines Group Inc. AAL to a Zacks Rank #5 (Strong Sell).

American Airlines operates in a highly competitive industry with the presence of low-cost carriers like Southwest Airlines and Virgin America. Moreover, the disappointing first-quarter 2016 forecast for passenger revenue per available seat mile (PRASM) provided by the management raises concern. The metric is expected to decline in the range of 6% and 8% in the quarter, mainly because of foreign currency exchange rate risks.

Also, the current Zika virus outbreak has affected business for many airlines, including the likes of American Airlines. Carriers are presently offering fliers (particularly pregnant women) refunds or options to reschedule their travel to Zika-affected areas. Such events affect operations for carriers like American Airlines to a great extent.

Meanwhile, American Airlines along with Delta Air Lines Inc. DAL, United Continental Holdings Inc. UAL and Southwest Airlines Co. LUV are being investigated by the Department of Justice on the possibility of collusion to limit the availability of seats with the objective of keeping airfares high. Apart from the probe, the ongoing dispute with the Gulf carriers is also a cause for concern.

However, the company’s efforts to reward shareholders through raised buybacks and dividend payments are impressive. During the fourth quarter, the company returned $1.2 billion to its shareholders through the payment of $72 million in dividends and share buyback of $1.1 billion. The company returned approximately 3.9 billion to its shareholders in 2015.

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