Is American Airlines a buy or sell in January?
- American Airlines business remains under pressure
- Booking trends are expected to be weak certainly next several months
- If the price falls below the $14 support level, it would be a firm "sell" signal
American Airlines Group (NASDAQ: AAL) shares have weakened from $30 below $8.5 since February 2020, and the current price stands around $15.7. American Airlines Group shares could weaken even more in the upcoming weeks, and probably it is not the right moment for buying this stock.
Fundamental analysis: American Airlines Group reduced its daily cash burn rate
American Airlines Group shares remain in the bear market as air travel remains restricted due to the coronavirus pandemic. American Airlines business will be under pressure in the next two or three years, and analysts predict that passenger traffic will return to 2019 levels in ~3 years.
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According to the latest news, all international airline passengers should show proof of a negative COVID-19 test before their flight to the United States. The order is expected to go into effect on January 26, but it is essential to say that international airline passengers in Europe and Asia are already facing COVID test requirements for non-U.S. flights.
The aviation segment will benefit once the economy reopens, but maybe it is not the right moment to buy a stock of this company. There has been some positive data regarding a COVID-19 vaccine but the global pandemic continues to add pressure to the airlane travel business.
UBS warned that there is a cautious sentiment around the aviation segment, and booking trends are expected to be weak for several months.
“Booking trends are expected to be weak until the vaccines roll out in the next few months before we see a more sustained recovery beginning into March/April. Importantly, the uptick in December trends was driven primarily by leisure travel, which represents gross bookings data and does not capture cancellation activity, potentially suggesting actual trends could be slightly worse than what we are seeing,” said an analyst from UBS.
Positive information is that the company started the phased return of furloughed workers, but the main reason for this stands behind the $15B pandemic aid package for airline payroll support. American Airlines Group reduced its daily cash burn rate to around $44M per day in Q3 from $58M in Q2 and continues to match its forward capacity with observed bookings trends.
Some analysts say that American Airlines Group is on the verge of bankruptcy, and it’s going to get worse. My opinion is that this stock is still a risky investment, and the price of American Airlines Group shares could weaken even more in the upcoming weeks.
Technical analysis: American Airlines Group shares remain in the bear market
The critical support levels are $14 and $10; $18 and $20 represent the resistance levels. If the price jumps above $18, it would be a signal to buy shares, and the next target could be around $20.
On the other side, if the price falls below the $14 support level, it would be a firm “sell” signal.
There are some apparent risks when it comes to investing in American Airlines shares, and probably it is not the right moment for buying this stock. UBS warned that there is a cautious sentiment around the aviation segment, and some analysts even say that American Airlines Group is on the verge of bankruptcy. American Airlines Group shares remain in the bear market, and if the price falls below the $14 support level, it would be a firm “sell” signal.