NEW YORK (TheStreet) -- Shares of American Airlines Group Inc. (AAL) - Get Report are down by 1.64% to $52.76 in early afternoon trading on Tuesday, as the airline sector slumps today due to concerns that carriers are offering too many seats, chiseling away at one of the industry's most closely watched sales measurements, Bloomberg reports.
In the first quarter revenue from each seat flown a mile declined and analysts believe it will likely continue to do so in the coming three months.
"It's really easy for investors to extrapolate a little bit of negative through the whole year. Investors are hoping for a little capacity discipline and maybe some cutback in flight schedules. Things like that help shore up the revenue environment," Andrew Meister, an analyst with Thrivent Financials for Lutherans told Bloomberg.
U.S. airline stocks were off to their worst start since 2011 this morning. When the market opened today 10 of 11 carriers were slipping, its slowest period to open since an 8.7% decline in 2011, Bloomberg added.
The weakness in airline revenue "is viewed as a harbinger of things to come," Meister said.
"Demand is strong, but it's just not strong enough to keep up with this level of capacity growth," American Airline president Scott Kirby said at the March 3 JPMorgan Chase & Co. (JPM) - Get Report transportation conference, according to Bloomberg.
Other airline stocks in the red today include Delta Air Lines (DAL) - Get Report, down by 1.25% to $44.99, United Continental (UAL) - Get Report, lower by 1.38% to $67.25, and Virgin America (VA) , declining by 2.17% to $30.62 this afternoon.
Separately, TheStreet Ratings team rates AMERICAN AIRLINES GROUP INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMERICAN AIRLINES GROUP INC (AAL) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, robust revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to other companies in the Airlines industry and the overall market, AMERICAN AIRLINES GROUP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The revenue growth came in higher than the industry average of 22.4%. Since the same quarter one year prior, revenues rose by 38.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 171.27% to $804.00 million when compared to the same quarter last year. Despite an increase in cash flow of 171.27%, AMERICAN AIRLINES GROUP INC is still growing at a significantly lower rate than the industry average of 1547.73%.
- The gross profit margin for AMERICAN AIRLINES GROUP INC is currently lower than what is desirable, coming in at 32.26%. Regardless of AAL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, AAL's net profit margin of 5.87% compares favorably to the industry average.
- The debt-to-equity ratio is very high at 8.86 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, AAL maintains a poor quick ratio of 0.73, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: AAL Ratings Report