Buy 400 Shares Of American Airlines (AAL) On 1/29/2015

AALI bought 400 shares of American Airlines stock this morning at a price of 50.98 per share. The price of AAL has come down in just the last three days from a recent high of about $56. The stock was driven down due to an earnings release on 1/27/2015 (you can read the full transcript here) and concern over the passenger revenue per available seat miles (PRASM) which fell, along with guidance that said it might fall further in the first half of 2015. Other concerns were increased competition in some of their markets and over 650 million dollars held in Bolivars (Venezuela) – that money needs to find a safe way home which is a problem right now with all the political goings on in that country. 

Why I Bought AAL Now – Low Fuel Prices

I’m buying this stock mainly for the estimated 5 billion in savings in 2015 they will have from lower fuel prices. Unlike some of their competitors, they do not hedge fuel expenses and that means they are buying and using fuel right now at the current low price. Some other airlines buy fuel months and years in advance which is called hedging. This benefits them if fuel prices continue going up but hurts them if they go down as we have happening right now.  

Five billion dollars is a lot of money that American Airlines will use to continue to upgrade their fleet and facilities on the ground, pay off debt, and return cash to shareholders through a 2 billion share buyback program that they just announced. Now is the time to buy stocks of companies that will directly benefit from such low oil prices and I think AAL is a good one. 

Additionally, they have a strong balance sheet that has over $8 billion in cash and being strong in that department always allows me to sleep better at night.  AAL could go down more from here as any stock can if the market tanks but I think this is a good enough entry point which is why I bought the stock today. It also pays a .7% dividend which is quite small but better than nothing. 

9 Responses to “Buy 400 Shares Of American Airlines (AAL) On 1/29/2015”

  1. Jonathan Shillcox says:

    What is your opinion currently on AAL. Is now a good time to buy since its so low?

  2. James says:

    How do you feel about AAL currently given the re-rating of shares?

    What’s caused the drop since early last year other than market volatility which has since recovered?

    • Bruce Alan says:

      I hate this stock and wish I never bought it. The reason I purchased shares (lower fuel prices and the company doesn’t hedge fuel) has never seemed to make a difference. Don’t be surprised if I sell this stock.

  3. thawda says:

    Why do you choose AAL rather than Southwest or Delta? Because of fuel hedging?

  4. vb says:

    What is your take on AAL exposure to over-seas sales impact based on dollar strength vs domestic carriers with no USD exposure and benefiting from lower fuel prices?

    Trying to determine which airline stock to invest.

  5. Gibran says:

    What is your take on buying AAL stocks after Deutsche bank downgraded several airline stocks based on week international sales outlook? One of the reasons for this was the relative impact on gain in future revenue was overestimated owing to its fuel buying strategies.

    • Bruce Alan says:

      I can’t sell a stock every time someone downgrades it….I’d have zero stocks in my portfolio! I’m owning this stock with a long term time horizon and I think it will do fine. Fuel costs remain low and all planes are full of passengers as far as I know. Summer is right around the corner and those planes should continue to be full while the fares remain the same even though fuel costs less.

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