Is American Airlines Ready to Soar?

Ed Ponsi

American Airlines (AAL) is scheduled to report earnings on Thursday, July 23 before the opening bell. The airline is looking at a loss of about $3 billion, or $6.92 per share. That massive loss could be further inflated by possible one-time charges. 

Last week, American issued 25,000 layoff notices to its employees, including 10,000 flight attendants. Airlines that receive federal CARES act funding are not permitted to lay off employees. However, that funding is set to expire on October 1st. 

American was hoping that travel demand would recover by then, but that no longer appears likely. An extension of the CARES act would buy American and other airlines some badly needed time, but there's no current plan to renew it. 

What do the charts tell us about the stock? Let's look at the U.S. Global Jets ETF, symbol JETS. This is a proxy for the airline industry as a whole. JETS is trading above its 50 day moving average, shown in blue. 

JETS

Recently, United Airlines, JetBlue, Southwest, and Delta have all spent significant time above that indicator. But notice how American is trading below its 50 day moving average. This shows relative weakness vs. the airline sector as a whole. 

AAL

This tells us that American is one of weaker airline stocks right now. A sector wide recovery would lift all airline stocks, but technically speaking, names like Spirit Airlines and JetBlue seem better positioned to lead that recovery.  

Speaking of JetBlue Airlines, American announced a new partnership with New York-based carrier last week. The agreement aligns the loyalty programs of both airlines. 

The plan expands American's presence in the Northeastern U.S., particularly in Boston and New York. It's a smart move by both airlines, but for American, it could be a case of too little, too late. 

Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. For more information about Ed and his work, click here.