Should I buy American Airlines in July 2021?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jun 21, 2021
  • American Airlines’ stock price fell 1.53% Monday morning.
  • The company said it cut flights this weekend amid a surge in demand and staffing shortages.
  • The airline reports earnings on 22nd July, so should I buy AAL shares now?

American Airlines Group Inc. (NASDAQ:AAL) shares pulled back on Monday morning to extend last week’s declines towards $22.00 per share. The company said it cut flights this weekend amid rising demand coupled with staffing shortages. The airline canceled 120 flights on Saturday and a further 176 on Sunday. It said it canceled half of the flights because of the unavailability of flight crews.

American Airlines spokeswoman Sarah Jantz said:

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The bad weather, combined with the labor shortages some of our vendors are contending with, and the [rapid] ramp-up of customer demand has led us to build in additional resilience and certainty to our operation by adjusting a fraction of our scheduled flying through mid-July.

Jantz said the company made targeted flight adjustments to try to reduce the number of customers affected.

What does this mean for American Airlines?

Investors should look at this as a build-up in inventory rather than an opportunity cost. The company said it made flight adjustments in markets where it has multiple options for re-accommodation. Therefore, it is likely to serve nearly all the rescheduled flights at some point in the near term. It means the top line will not be severely affected.

The ramp-up in flights saw 50 million Americans travel last month, 19% more than the numbers reported in April. This month, the figure has already surpassed 35 million, again illustrating the impact of the lifting of flight restrictions. 

The US airline industry is bouncing back after a covid-19 ravaged period in 2020 and at the beginning of this year. Things are looking up, and this is good for the industry as a whole. 

Source – TradingView

Technical overview: AAL challenges 100-day MA

Technically, American Airlines’ share price appears to be challenging the trendline support next to the 100-day moving average. The stock has plunged in recent trading sessions to move closer to the oversold levels of the 14-day RSI.

AAL shares could bounce back from the current condition if investors begin to target rebound profits. The current resistance levels at $25.88 and $29.60 represent realistic targets. The key support levels are $19.37 and $15.39.

Bottom line: American Airlines seems poised for a rebound

American Airlines shares have pulled back significantly in recent trading sessions. The company extended declines on Monday after announcing flight cancelations during the weekend. 

However, the airline industry appears to be on recovery, driving airline stock prices higher. The current pullback in the price of AAL stock looks like an excellent opportunity to buy ahead of earnings in July.

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