Intrinsic value of American Airlines Group - AAL

Previous Close

$58.10

  Intrinsic Value

$40.24

stock screener

  Rating & Target

sell

-31%

Previous close

$58.10

 
Intrinsic value

$40.24

 
Up/down potential

-31%

 
Rating

sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AAL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -1.98
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  40,180
  41,265
  42,474
  43,806
  45,262
  46,842
  48,548
  50,382
  52,347
  54,446
  56,683
  59,063
  61,590
  64,269
  67,107
  70,109
  73,283
  76,634
  80,172
  83,904
  87,838
  91,985
  96,352
  100,952
  105,794
  110,889
  116,251
  121,890
  127,822
  134,059
  140,617
Variable operating expenses, $m
 
  35,023
  36,037
  37,155
  38,376
  39,701
  41,132
  42,671
  44,319
  46,079
  47,956
  49,543
  51,663
  53,910
  56,290
  58,809
  61,471
  64,282
  67,250
  70,380
  73,680
  77,158
  80,822
  84,680
  88,742
  93,016
  97,513
  102,244
  107,219
  112,451
  117,952
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  34,896
  35,023
  36,037
  37,155
  38,376
  39,701
  41,132
  42,671
  44,319
  46,079
  47,956
  49,543
  51,663
  53,910
  56,290
  58,809
  61,471
  64,282
  67,250
  70,380
  73,680
  77,158
  80,822
  84,680
  88,742
  93,016
  97,513
  102,244
  107,219
  112,451
  117,952
Operating income, $m
  5,284
  6,242
  6,437
  6,652
  6,886
  7,141
  7,416
  7,712
  8,028
  8,367
  8,727
  9,520
  9,927
  10,359
  10,816
  11,300
  11,812
  12,352
  12,922
  13,524
  14,158
  14,826
  15,530
  16,272
  17,052
  17,873
  18,737
  19,646
  20,603
  21,608
  22,665
EBITDA, $m
  7,102
  8,304
  8,547
  8,815
  9,108
  9,426
  9,769
  10,139
  10,534
  10,956
  11,407
  11,885
  12,394
  12,933
  13,504
  14,108
  14,747
  15,421
  16,133
  16,884
  17,676
  18,510
  19,389
  20,315
  21,289
  22,315
  23,393
  24,528
  25,722
  26,977
  28,297
Interest expense (income), $m
  867
  855
  697
  744
  794
  850
  910
  976
  1,046
  1,121
  1,201
  1,286
  1,377
  1,474
  1,576
  1,685
  1,800
  1,921
  2,049
  2,184
  2,327
  2,477
  2,635
  2,802
  2,978
  3,163
  3,358
  3,563
  3,778
  4,005
  4,243
Earnings before tax, $m
  4,299
  5,387
  5,740
  5,908
  6,092
  6,291
  6,506
  6,736
  6,983
  7,246
  7,526
  8,233
  8,550
  8,885
  9,240
  9,616
  10,012
  10,431
  10,873
  11,340
  11,831
  12,349
  12,895
  13,469
  14,074
  14,710
  15,380
  16,084
  16,824
  17,603
  18,422
Tax expense, $m
  1,623
  1,455
  1,550
  1,595
  1,645
  1,699
  1,756
  1,819
  1,885
  1,956
  2,032
  2,223
  2,308
  2,399
  2,495
  2,596
  2,703
  2,816
  2,936
  3,062
  3,194
  3,334
  3,482
  3,637
  3,800
  3,972
  4,153
  4,343
  4,543
  4,753
  4,974
Net income, $m
  2,676
  3,933
  4,190
  4,313
  4,447
  4,592
  4,749
  4,917
  5,097
  5,289
  5,494
  6,010
  6,241
  6,486
  6,745
  7,019
  7,309
  7,615
  7,938
  8,278
  8,637
  9,015
  9,413
  9,833
  10,274
  10,738
  11,227
  11,741
  12,282
  12,850
  13,448

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,359
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  51,274
  46,106
  47,457
  48,946
  50,572
  52,338
  54,244
  56,293
  58,488
  60,834
  63,333
  65,992
  68,815
  71,809
  74,980
  78,334
  81,880
  85,625
  89,578
  93,747
  98,143
  102,776
  107,656
  112,795
  118,205
  123,899
  129,889
  136,190
  142,818
  149,787
  157,114
Adjusted assets (=assets-cash), $m
  44,915
  46,106
  47,457
  48,946
  50,572
  52,338
  54,244
  56,293
  58,488
  60,834
  63,333
  65,992
  68,815
  71,809
  74,980
  78,334
  81,880
  85,625
  89,578
  93,747
  98,143
  102,776
  107,656
  112,795
  118,205
  123,899
  129,889
  136,190
  142,818
  149,787
  157,114
Revenue / Adjusted assets
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
Average production assets, $m
  31,546
  32,393
  33,342
  34,388
  35,531
  36,771
  38,110
  39,550
  41,092
  42,740
  44,496
  46,364
  48,348
  50,451
  52,679
  55,036
  57,527
  60,158
  62,935
  65,865
  68,953
  72,208
  75,637
  79,247
  83,048
  87,048
  91,257
  95,684
  100,340
  105,236
  110,384
Working capital, $m
  -3,548
  -8,253
  -8,495
  -8,761
  -9,052
  -9,368
  -9,710
  -10,076
  -10,469
  -10,889
  -11,337
  -11,813
  -12,318
  -12,854
  -13,421
  -14,022
  -14,657
  -15,327
  -16,034
  -16,781
  -17,568
  -18,397
  -19,270
  -20,190
  -21,159
  -22,178
  -23,250
  -24,378
  -25,564
  -26,812
  -28,123
Total debt, $m
  24,344
  18,350
  19,566
  20,906
  22,370
  23,959
  25,674
  27,519
  29,494
  31,605
  33,855
  36,248
  38,789
  41,483
  44,337
  47,356
  50,547
  53,917
  57,475
  61,228
  65,184
  69,354
  73,746
  78,371
  83,240
  88,364
  93,755
  99,426
  105,391
  111,663
  118,257
Total liabilities, $m
  47,489
  41,495
  42,711
  44,051
  45,515
  47,104
  48,819
  50,664
  52,639
  54,750
  57,000
  59,393
  61,934
  64,628
  67,482
  70,501
  73,692
  77,062
  80,620
  84,373
  88,329
  92,499
  96,891
  101,516
  106,385
  111,509
  116,900
  122,571
  128,536
  134,808
  141,402
Total equity, $m
  3,785
  4,611
  4,746
  4,895
  5,057
  5,234
  5,424
  5,629
  5,849
  6,083
  6,333
  6,599
  6,882
  7,181
  7,498
  7,833
  8,188
  8,562
  8,958
  9,375
  9,814
  10,278
  10,766
  11,280
  11,821
  12,390
  12,989
  13,619
  14,282
  14,979
  15,711
Total liabilities and equity, $m
  51,274
  46,106
  47,457
  48,946
  50,572
  52,338
  54,243
  56,293
  58,488
  60,833
  63,333
  65,992
  68,816
  71,809
  74,980
  78,334
  81,880
  85,624
  89,578
  93,748
  98,143
  102,777
  107,657
  112,796
  118,206
  123,899
  129,889
  136,190
  142,818
  149,787
  157,113
Debt-to-equity ratio
  6.432
  3.980
  4.120
  4.270
  4.420
  4.580
  4.730
  4.890
  5.040
  5.200
  5.350
  5.490
  5.640
  5.780
  5.910
  6.050
  6.170
  6.300
  6.420
  6.530
  6.640
  6.750
  6.850
  6.950
  7.040
  7.130
  7.220
  7.300
  7.380
  7.450
  7.530
Adjusted equity ratio
  -0.057
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,676
  3,933
  4,190
  4,313
  4,447
  4,592
  4,749
  4,917
  5,097
  5,289
  5,494
  6,010
  6,241
  6,486
  6,745
  7,019
  7,309
  7,615
  7,938
  8,278
  8,637
  9,015
  9,413
  9,833
  10,274
  10,738
  11,227
  11,741
  12,282
  12,850
  13,448
Depreciation, amort., depletion, $m
  1,818
  2,062
  2,110
  2,164
  2,222
  2,285
  2,354
  2,427
  2,506
  2,590
  2,679
  2,366
  2,467
  2,574
  2,688
  2,808
  2,935
  3,069
  3,211
  3,360
  3,518
  3,684
  3,859
  4,043
  4,237
  4,441
  4,656
  4,882
  5,119
  5,369
  5,632
Funds from operations, $m
  6,792
  5,995
  6,300
  6,477
  6,669
  6,878
  7,103
  7,344
  7,603
  7,879
  8,173
  8,376
  8,708
  9,060
  9,433
  9,827
  10,244
  10,684
  11,149
  11,638
  12,155
  12,699
  13,272
  13,876
  14,511
  15,180
  15,883
  16,623
  17,401
  18,219
  19,080
Change in working capital, $m
  268
  -217
  -242
  -266
  -291
  -316
  -341
  -367
  -393
  -420
  -447
  -476
  -505
  -536
  -568
  -600
  -635
  -670
  -708
  -746
  -787
  -829
  -874
  -920
  -968
  -1,019
  -1,072
  -1,128
  -1,186
  -1,247
  -1,312
Cash from operations, $m
  6,524
  6,212
  6,542
  6,743
  6,960
  7,194
  7,444
  7,711
  7,996
  8,299
  8,621
  8,852
  9,213
  9,596
  10,000
  10,428
  10,879
  11,354
  11,856
  12,385
  12,942
  13,528
  14,146
  14,796
  15,479
  16,199
  16,955
  17,751
  18,587
  19,467
  20,391
Maintenance CAPEX, $m
  0
  -1,609
  -1,653
  -1,701
  -1,754
  -1,813
  -1,876
  -1,944
  -2,018
  -2,097
  -2,181
  -2,270
  -2,366
  -2,467
  -2,574
  -2,688
  -2,808
  -2,935
  -3,069
  -3,211
  -3,360
  -3,518
  -3,684
  -3,859
  -4,043
  -4,237
  -4,441
  -4,656
  -4,882
  -5,119
  -5,369
New CAPEX, $m
  -5,731
  -847
  -949
  -1,046
  -1,143
  -1,240
  -1,339
  -1,440
  -1,542
  -1,648
  -1,756
  -1,868
  -1,984
  -2,103
  -2,228
  -2,357
  -2,491
  -2,631
  -2,777
  -2,929
  -3,089
  -3,255
  -3,429
  -3,611
  -3,801
  -4,000
  -4,209
  -4,427
  -4,656
  -4,896
  -5,148
Cash from investing activities, $m
  -5,698
  -2,456
  -2,602
  -2,747
  -2,897
  -3,053
  -3,215
  -3,384
  -3,560
  -3,745
  -3,937
  -4,138
  -4,350
  -4,570
  -4,802
  -5,045
  -5,299
  -5,566
  -5,846
  -6,140
  -6,449
  -6,773
  -7,113
  -7,470
  -7,844
  -8,237
  -8,650
  -9,083
  -9,538
  -10,015
  -10,517
Free cash flow, $m
  826
  3,755
  3,940
  3,996
  4,063
  4,140
  4,228
  4,327
  4,436
  4,555
  4,684
  4,714
  4,864
  5,026
  5,199
  5,383
  5,580
  5,788
  6,010
  6,244
  6,493
  6,755
  7,033
  7,326
  7,635
  7,962
  8,305
  8,668
  9,049
  9,451
  9,874
Issuance/(repayment) of debt, $m
  3,874
  -4,139
  1,216
  1,340
  1,464
  1,589
  1,715
  1,844
  1,976
  2,111
  2,250
  2,393
  2,541
  2,694
  2,854
  3,019
  3,191
  3,371
  3,558
  3,753
  3,956
  4,169
  4,392
  4,625
  4,869
  5,124
  5,391
  5,671
  5,965
  6,272
  6,594
Issuance/(repurchase) of shares, $m
  -4,500
  1,397
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -670
  -2,742
  1,216
  1,340
  1,464
  1,589
  1,715
  1,844
  1,976
  2,111
  2,250
  2,393
  2,541
  2,694
  2,854
  3,019
  3,191
  3,371
  3,558
  3,753
  3,956
  4,169
  4,392
  4,625
  4,869
  5,124
  5,391
  5,671
  5,965
  6,272
  6,594
Total cash flow (excl. dividends), $m
  156
  1,013
  5,156
  5,336
  5,527
  5,729
  5,944
  6,171
  6,411
  6,665
  6,934
  7,106
  7,405
  7,720
  8,052
  8,402
  8,771
  9,159
  9,567
  9,997
  10,449
  10,925
  11,425
  11,951
  12,504
  13,086
  13,697
  14,339
  15,014
  15,723
  16,469
Retained Cash Flow (-), $m
  1,850
  -5,330
  -135
  -149
  -163
  -177
  -191
  -205
  -220
  -235
  -250
  -266
  -282
  -299
  -317
  -335
  -355
  -375
  -395
  -417
  -440
  -463
  -488
  -514
  -541
  -569
  -599
  -630
  -663
  -697
  -733
Prev. year cash balance distribution, $m
 
  4,504
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  187
  5,021
  5,187
  5,364
  5,553
  5,753
  5,966
  6,192
  6,431
  6,684
  6,841
  7,123
  7,421
  7,735
  8,067
  8,416
  8,784
  9,172
  9,580
  10,010
  10,462
  10,937
  11,437
  11,963
  12,516
  13,098
  13,709
  14,351
  15,026
  15,736
Discount rate, %
 
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.42
  17.24
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
  28.09
  29.49
  30.97
  32.52
PV of cash for distribution, $m
 
  174
  4,281
  4,037
  3,780
  3,511
  3,233
  2,950
  2,664
  2,381
  2,104
  1,806
  1,557
  1,323
  1,107
  912
  739
  588
  459
  351
  263
  192
  137
  96
  65
  43
  28
  17
  10
  6
  3
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

American Airlines Group Inc. is a holding company. The Company's primary business activity is the operation of a network air carrier, providing scheduled air transportation for passengers and cargo. The Company operates through American segment, which provides air transportation for passengers and cargo. The Company's cargo division provides a range of freight and mail services with facilities and interline connections available across the globe. Together with its regional airline subsidiaries and third-party regional carriers operating as American Eagle, its airline operated an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries, principally from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, District of Columbia, as of December 31, 2016. In the fiscal year ended December 31, 2016, approximately 199 million passengers boarded its mainline and regional flights.

FINANCIAL RATIOS  of  American Airlines Group (AAL)

Valuation Ratios
P/E Ratio 11
Price to Sales 0.7
Price to Book 7.8
Price to Tangible Book
Price to Cash Flow 4.5
Price to Free Cash Flow 37.2
Growth Rates
Sales Growth Rate -2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.8%
Cap. Spend. - 3 Yr. Gr. Rate 13%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 594.2%
Total Debt to Equity 643.2%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 11.4%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 19%
Return On Equity 56.8%
Return On Equity - 3 Yr. Avg. -185.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 61.9%
Gross Margin - 3 Yr. Avg. 57.3%
EBITDA Margin 17.4%
EBITDA Margin - 3 Yr. Avg. 15.8%
Operating Margin 13.2%
Oper. Margin - 3 Yr. Avg. 12.7%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 9.8%
Net Profit Margin 6.7%
Net Profit Margin - 3 Yr. Avg. 10.7%
Effective Tax Rate 37.8%
Eff/ Tax Rate - 3 Yr. Avg. -5.6%
Payout Ratio 8.4%

AAL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAL stock intrinsic value calculation we used $40180 million for the last fiscal year's total revenue generated by American Airlines Group. The default revenue input number comes from 2016 income statement of American Airlines Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AAL stock valuation model: a) initial revenue growth rate of 2.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.9%, whose default value for AAL is calculated based on our internal credit rating of American Airlines Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of American Airlines Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AAL stock the variable cost ratio is equal to 84.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AAL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.8% for American Airlines Group.

Corporate tax rate of 27% is the nominal tax rate for American Airlines Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AAL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AAL are equal to 78.5%.

Life of production assets of 19.6 years is the average useful life of capital assets used in American Airlines Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AAL is equal to -20%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3785 million for American Airlines Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 482.414 million for American Airlines Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of American Airlines Group at the current share price and the inputted number of shares is $28.0 billion.

Management's discussion and analysis

Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle, our airline operates an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries, principally from our hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. In 2016, approximately 199 million passengers boarded our mainline and regional flights.

We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation, to building the best employee relations in the industry and to providing returns for our stockholders. In January 2017, we were named the 2017 Airline of the Year by Air Transport World, which cited the integration work related to the Merger, our operational and customer service improvements and the investments we are making in our product.

Operational Highlights

During 2016, we made significant investments related to our integration and to continue to improve our product offerings and operational performance.

Integration Accomplishments

   

Integrated all mainline pilots and our mainline fleet into a single scheduling system, allowing us to schedule pilots and aircraft seamlessly across the network regardless of which pre-Merger airline they came from

   

Reached interim agreements with the TWU-IAM that allows our mainline mechanics and ramp personnel to be able to work together and be cross-utilized. Additionally, we ratified five-year JCBAs for dispatchers, flight crew training instructors, simulator pilot instructors and flight simulator engineers

   

Completed the painting of all US Airways mainline aircraft in the American livery. Repainting of former US Airways Express regional jets is expected to be finished in mid-2017

Investments in Our Product and Operations

   

Invested approximately $4.4 billion in new aircraft, including 55 new mainline and 42 new regional aircraft. As a result of our ongoing fleet renewal program, we have the youngest fleet of the major U.S. network carriers

   

Hired additional personnel and invested in new equipment and technology to support our operations. In the fourth quarter of 2016, we achieved our best monthly completion factor, on-time performance, and baggage handling performance since the Merger

   

Redesigned our AAdvantage® loyalty program to award mileage credits based on the price of tickets purchased, enabling elite members to earn even more miles based on their status level. During 2016, the AAdvantage® program was named Best Elite Program in the Americas by the Freddie Awards

   

Introduced Premium Economy, a new class of service on international flights with more legroom, wider seats, and enhanced meal service and amenity kits

   

Made several other customer experience improvements including the reintroduction of free snacks in the main cabin, the launch of complimentary in-flight entertainment and the redesign and upgrade of many Admirals Club lounges

Financial Overview

The U.S. Airline Industry

In 2016, the U.S. airline industry benefited from lower fuel prices. However, the reductions in fuel costs were offset by year-over-year declines in revenue. Both domestic and international markets were impacted by competitive capacity growth. International markets were also impacted by macroeconomic softness and foreign currency weakness.

Jet fuel prices closely follow the price of Brent crude oil. On average, the price of Brent crude oil per barrel was approximately 17% lower in 2016 as compared to 2015. The average daily spot price for Brent crude oil during 2016 was $44 per barrel as compared to an average daily spot price of $52 per barrel during 2015. On a daily basis, Brent crude oil prices fluctuated during 2016 between a high of $55 per barrel to a low of $26 per barrel, and closed the year on December 31, 2016 at $55 per barrel.

While jet fuel prices have declined year-over-year as described above, uncertainty exists regarding the economic conditions driving these declines. See Part I, Item 1A. Risk Factors – “Downturns in economic conditions could adversely affect our business”and “Our business is very dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.”

AAG’s 2016 Results

The selected financial data presented below is derived from AAG’s audited consolidated financial statements included in Part II, Item 8A of this report and should be read in conjunction with those financial statements and the related notes thereto.

                                 
    Year Ended
December 31,
    Increase
(Decrease)
    Percent
Increase 
(Decrease)
 
    2016     2015      
    (In millions, except percentage changes)  

Mainline and regional passenger revenues

  $ 34,579     $ 35,512     $ (933     (2.6

Cargo and other operating revenues

    5,601       5,478       123       2.3  

Total operating revenues

    40,180       40,990       (810     (2.0

Mainline and regional aircraft fuel and related taxes

    6,180       7,456       (1,276     (17.1

Salaries, wages and benefits

    10,890       9,524       1,366       14.4  

Total operating expenses

    34,896       34,786       110       0.3  

Operating income

    5,284       6,204       (920     (14.8

Pre-tax income

    4,299       4,616       (317     (6.9

Income tax provision (benefit)

    1,623       (2,994     4,617       nm  

Net income

    2,676       7,610       (4,934     (64.8
         

Pre-tax income

  $ 4,299     $ 4,616     $ (317     (6.9

Adjusted for: Total pre-tax special items (1)

    772       1,674       (902     (53.9
                                   

Pre-tax income excluding special items

  $ 5,071     $ 6,290     $ (1,219     (19.4
                                   

Results of Operations – 2016 Compared to 2015

We realized net income of $2.7 billion in 2016. This compares to $7.6 billion of net income in 2015, which included a special $3.0 billion non-cash tax benefit as we reversed the valuation allowance on our deferred tax assets, which include our federal and state NOLs. As a result of the reversal of the valuation allowance, we recorded a $1.6 billion provision for income taxes in 2016, which is substantially non-cash due to the utilization of NOLs. Accordingly, amounts reported in 2016 for income tax provision and net income are not comparable to 2015.

We realized pre-tax income of $4.3 billion and $4.6 billion in 2016 and 2015, respectively. Excluding the effects of pre-tax net special items, pre-tax income was $5.1 billion and $6.3 billion in 2016 and 2015, respectively. For reconciliation of pre-tax and net income excluding special items to their comparable measures on a GAAP basis, see Part II, Item 6. Selected Consolidated Financial Data –“Reconciliation of GAAP to Non-GAAP Financial Measures.

Our 2016 pre-tax results on both a GAAP basis and excluding pre-tax net special items were impacted by a decline in revenues due to lower yields. Salaries, wages and benefits costs were higher in 2016, driven by our new labor contracts and the addition of an employee profit sharing program; however, these increases were substantially offset by a year-over-year decline in fuel costs.

Total operating revenues in 2016 decreased $810 million, or 2.0%, from 2015 driven by lower passenger revenues offset in part by higher other revenue. Our mainline and regional TRASM was 14.70 cents in 2016, a 3.7% decrease as compared to 15.25 cents in 2015.

Total passenger revenues declined $933 million, or 2.6%, in 2016 from 2015 driven by a 2.8% decrease in yield due to competitive capacity growth, macroeconomic softness outside of the United States and foreign currency weakness.

Cargo revenue decreased $60 million, or 7.9%, in 2016 from 2015 driven primarily by a decrease in domestic and international freight yields.

Other revenue primarily includes revenue associated with our loyalty program, baggage fees, ticketing change fees, airport clubs and inflight services. Other revenue increased $183 million, or 3.9%, in 2016 from 2015 driven by an increase in loyalty program revenue. In 2016 and 2015, other revenues associated with our loyalty program were $2.1 billion and $1.9 billion, respectively, of which $1.9 billion and $1.7 billion, respectively, related to the marketing component of mileage sales and other marketing related payments. This year-over-year increase was due to our new co-branded credit card agreements which became effective in the third quarter of 2016. See Note 1(i) to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on the loyalty program.

Total operating expenses were $34.9 billion in 2016, an increase of $110 million, or 0.3%, from 2015. The increase in operating expenses was due to higher salaries, wages and benefits driven by new labor contracts and the addition of an employee profit sharing program; however, these costs were substantially offset by a year-over-year decline in fuel costs. See detailed explanations below relating to changes in mainline operating costs per ASM.

[Source: Form 10-K dated 2017-02-22]

RELATED COMPANIES Price Int.Val. Rating
UAL United Contine 76.87 200.08  str.buy
ALK Alaska Air Gro 68.55 940.30  str.buy
HA Hawaiian Holdi 37.85 125.64  str.buy
DAL Delta Air Line 60.13 234.52  str.buy
LUV Southwest Airl 64.89 77.83  hold
JBLU JetBlue Airway 22.59 45.73  str.buy
ALGT Allegiant Trav 167.70 306.19  str.buy
SAVE Spirit Airline 43.33 132.96  str.buy

COMPANY NEWS

▶ [$$] Large Airlines Flock Back to Midsize Cities   [12:33AM  The Wall Street Journal]
▶ [$$] Return Trip: Airlines Flock Back to Smaller Cities   [Jan-22-18 02:41PM  The Wall Street Journal]
▶ American Airlines: Analysts Views before 4Q17   [01:10PM  Market Realist]
▶ American Airlines: 4Q17 Revenue Estimates   [10:09AM  Market Realist]
▶ American Airlines adding a dozen new routes from O'Hare Airport   [02:39PM  American City Business Journals]
▶ American Airlines uniform lawsuit bolstered by new hazard evaluation   [02:00PM  American City Business Journals]
▶ United Airlines and American Airlines are feeling new heat from WOW air   [Jan-16-18 03:45PM  American City Business Journals]
▶ This airline is offering up to $45K signing bonuses for pilots   [12:05PM  American City Business Journals]
▶ American Airlines Earns Technical Rating Upgrade   [03:00AM  Investor's Business Daily]
▶ 2 More Airlines Just Raised Their Revenue Guidance   [Jan-13-18 10:45AM  Motley Fool]
▶ Bill Nygren Buys American Airlines, CVS, Priceline   [Jan-12-18 03:31PM  GuruFocus.com]
▶ Nonsensical action in oil and airline stocks   [Jan-11-18 07:21PM  CNBC Videos]
▶ Bill Nygren Comments on American Airlines   [05:16PM  GuruFocus.com]
▶ These airlines respond to your Twitter rants and raves the fastest   [04:10PM  American City Business Journals]
▶ Delta Results Lifting Airline Stocks   [10:55AM  24/7 Wall St.]
▶ [$$] The Best and Worst U.S. Airlines of 2017   [12:15AM  The Wall Street Journal]
▶ American Airlines to offer on-the-spot compensation for inflight inconveniences   [Jan-10-18 04:56PM  American City Business Journals]
▶ American Airlines taps Lands' End to supply new employee uniforms   [04:52PM  American City Business Journals]
▶ This airline is offering up to $45K signing bonuses for pilots   [04:15PM  American City Business Journals]
▶ Former American Airlines general counsel recalls turbulent years   [01:05PM  American City Business Journals]
▶ [$$] The Best and Worst Airlines of 2017   [10:28AM  The Wall Street Journal]
▶ American Airlines taps Lands' End to supply new employee uniforms   [Jan-09-18 07:35PM  American City Business Journals]
▶ Is Delta Air Lines, Inc. a Buy in 2018?   [06:10AM  Motley Fool]
▶ Bill Nygren"s Oakmark Fund: Fourth Quarter 2017 Commentary   [Jan-08-18 05:39PM  GuruFocus.com]
▶ Alaska Air Group awards $1,000 bonuses to workers after Trump tax cut   [12:15AM  American City Business Journals]
▶ American Airlines CEO takes in $19 million from stock sale   [Jan-03-18 05:55PM  Associated Press]
▶ Delta Air Lines shines in new punctuality study   [04:25PM  American City Business Journals]
▶ Delta Air Lines shines in new punctuality study   [01:45PM  American City Business Journals]
Financial statements of AAL
Follow us on:   twitter   twitter   twitter   twitter

ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.