American Airlines Group Inc. AAL could deliver a successful share price turnaround following its 26% decline over the past year.
Catalysts for the airline include the upgrade of its customer loyalty program, partnerships with other airlines and improving punctuality.
Loyalty program growth
The company is investing in improving its customer loyalty. For example, the airline installed high-speed Wi-Fi services in over 700 of its aircraft and opened new airport lounges during the fourth quarter. The lounges are accessible to loyalty program members, who could benefit from an improved travel experience.
In addition, American Airlines launched loyalty program partnerships with popular brands such as Apple AAPL and Hyatt H. The companies provide the airline’s loyalty members with exclusive offers and discounts that could increase the appeal of its loyalty scheme versus those of its competitors. The company also invested in new technology to speed up its customer check-in process on international flights, which could strengthen its competitive position in the lucrative long-haul flight market.
The company’s investments in improving the flying experience of its customers contributed to its highest-ever year-over-year growth in loyalty program members in the fourth quarter. This trend could continue as the business makes further investments to differentiate its loyalty program from those of its peers. The growing number of loyalty program members may increase its sales and widen its economic moat.
Partnership growth
The company entered into a number of partnerships in the fourth quarter that could catalyze its financial performance. For example, it announced a new partnership with British Airways to provide eight new transatlantic routes. American Airlines will also co-locate with British Airways at the John F. Kennedy International Airport in New York. This will allow the two companies to more efficiently connect their customers to their next flights.
Additionally, the company partnered with Australian airline Qantas to offer new routes to Australasia and to provide improved frequent flier benefits to their customers. American Airlines will also launch its first services to Africa and Poland in 2020, which could boost its sales and introduce a broader range of consumers to its business.
Potential threats
American Airlines' fiscal 2019 financial performance was negatively impacted by the grounding of Boeing's (BA) 737 Max aircraft. The planes have been grounded for over seven months, and there is currently no knowing when they will be operational again. This could mean that American Airlines has a smaller fleet than it had previously expected, which could cause travel disruptions for customers and further financial uncertainty for the business.
In addition, the airline has been engaged in labor contract negotiations, which have caused delays and may negatively impact its reputation among consumers.
In response, the company has reached a confidential settlement with Boeing to compensate American Airlines for the financial damages it incurred in fiscal 2019 from the grounding of the jet. This could mean American Airlines will receive further compensation from Boeing should the aircraft continue to be grounded.
American Airlines reduced the number of its aircraft that are out of service in the fourth quarter, which led to a larger number of its flights departing and arriving on time, as well as fewer flights being cancelled. It expects to further reduce the number of its aircraft that are out of service, which could improve its punctuality and boost its reputation among consumers.
Outlook
Market analysts forecast that the airline will report a 12% increase in its earnings per share in fiscal 2021. The company’s forward price-earnings ratio of 5 suggests it is undervalued given its growth potential.
Disclosure: The author has no positions in any stocks mentioned.
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