American Airlines Stock Rises as Morgan Stanley Upgrades Outlook

American Airlines Group Inc. stock experienced a surge on Monday following an upgrade from Morgan Stanley. The investment bank’s fourth-quarter earnings outlook for the sector was a key factor in the upgrade.

In midday trading, American Airlines (AAL) saw a 6% increase, benefitting from not having to ground any planes due to the absence of Boeing’s (BA) 737 Max 9 jets in its fleet. In contrast, Alaska Airlines and United Airlines were forced to ground all their 737 Max 9 planes after an Alaska Airlines flight experienced a fuselage panel blowout midair.

This surge in American Airlines stock represents its largest one-day percent increase since January 12, 2023, when it rose by 9.71%, according to Dow Jones Market Data. The stock has enjoyed three consecutive trading days of gains, resulting in a total increase of approximately 11.4% during this period.

Morgan Stanley analyst Ravi Shanker upgraded American Airlines from equal-weight to overweight. This decision was based on the carriers’ decent holiday season performance and the sharp decline in fuel costs.

Excitingly, American Airlines is preparing for its first investor day in many years, as it has successfully reduced its average weekly cancellations to a mere 0.2% of scheduled flights during the fourth quarter.

Morgan Stanley Bullish on American Airlines’ Strong Operating Performance

Morgan Stanley is optimistic about American Airlines’ (AAL) earnings projections, attributing it to the airline’s robust operational resiliency in recent weeks. According to Shanker, an analyst at Morgan Stanley, the airline’s “strong” operating performance will contribute to cost containment, although it continues to face inflationary pressures on labor and other expenses.

Morgan Stanley has also downgraded Frontier Group Holdings (ULCC) and reduced its price target for Southwest Airlines Co. (LUV) to $40 from $47 per share. However, Delta Airlines Inc. (DAL) still retains its position as Morgan Stanley’s top pick in the sector.

Despite the resilience of demand across the industry during the quarter, traditional domestic destinations faced fierce competition from international routes. The past year has been challenging for airlines due to several headwinds, including competition from newly opened international routes, macroeconomic conditions, volatile jet-fuel prices, labor-contract inflation, and ongoing aircraft-delivery delays.

Also read: American Airlines stock sinks towards its longest losing streak in over 2 years amidst a broad selloff in the airline sector.