American Airlines Group (AAL) shares tumbled after the carrier warned that surging jet fuel prices are eroding profitability, overshadowing an otherwise stronger-than-expected second-quarter earnings report. While the airline delivered record quarterly revenue and topped Wall Street’s earnings estimates, investors focused on sharply higher fuel expenses and a weaker full-year outlook, raising fresh concerns about margin pressure and the stock’s near-term trajectory.
Fuel costs have emerged as the key challenge. American said second-quarter fuel expense jumped by more than $2.2 billion, or 83% year-over-year (YOY), although higher ticket prices offset nearly half of that increase. Management expects fuel costs to remain elevated in the third quarter and now forecasts full-year adjusted earnings ranging from a loss of $0.65 per share to a profit of $0.65, a significant reduction from its previous outlook.
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Despite the disappointing guidance, the underlying business remains resilient. The airline generated record quarterly revenue, supported by strong premium travel demand, higher corporate bookings, and continued growth in its loyalty program. Domestic and international demand also remained healthy, suggesting that revenue trends have not weakened even as costs have risen.
Therefore, if crude oil retreats and jet fuel costs normalize, American could see a meaningful recovery in earnings given the strength of travel demand. However, compared with rivals such as Delta Air Lines (DAL) and United Airlines (UAL), American has less margin flexibility and debt burden, making it more vulnerable to prolonged energy price volatility. So, is the stock a buy, sell or hold now?
About American Airlines Stock
American Airlines Group is one of the world’s largest airline companies, operating an extensive network of domestic and international flights through its mainline American Airlines brand and regional affiliates. The carrier serves hundreds of destinations across North America, Europe, Latin America, Asia, and the Middle East, with major hub operations in cities including Dallas/Fort Worth, Charlotte, Miami, Chicago, and Phoenix. Headquartered in Fort Worth, Texas, American Airlines had a market cap of $9.4 billion.
American Airlines stock has delivered a positive return over the longer term but has struggled in 2026 as investors weighed the impact of rising operating costs on profitability. Shares are up 26.3% over the past 52 weeks, reflecting the airline’s recovery in travel demand and improved revenue trends.
However, the stock has fallen 5.6% year-to-date (YTD), with sentiment deteriorating as higher jet fuel prices prompted a cautious stance among investors. The selling intensified on July 23, when AAL plunged 8.4% after the company warned that surging fuel costs would significantly pressure margins despite reporting record quarterly revenue and better-than-expected earnings, underscoring investors’ concerns that elevated energy prices could outweigh strong demand in the near term.
www.barchart.com Despite the price weakness, the stock trades at a premium to industry peers at 25.89 times forward price-to-earnings.
Better-than-Expected Q2 Earnings
American Airlines Group released its second-quarter 2026 results on July 23, reporting record quarterly revenue and earnings that exceeded Wall Street expectations, although investors focused on weaker guidance driven by surging fuel costs. Revenue increased 16.3% YOY to a record $16.7 billion, supported by strong demand across premium, corporate, and international travel.
American Airlines’ four commercial pillars continued to drive strong revenue momentum in Q2 2026. Premium unit revenue increased over 13% YOY, managed corporate revenue rose 26%, and the airline posted robust international unit revenue growth, with the Pacific region up 15%, Atlantic up around 9%, and Latin America up almost 7%, while domestic unit revenue increased nearly 11%. The company’s loyalty strategy also remained a key growth driver, with AAdvantage enrollments increasing more than 30% YOY.
The company said these four revenue pillars, together with higher fares, helped recover nearly 50% of the more than $2.2 billion increase in fuel costs, highlighting resilient travel demand despite a challenging cost environment.
Adjusted earnings came in at $0.15 per share, well above analysts’ expectations. However, net income declined sharply to $71 million from $599 million a year earlier, reflecting the significant impact of higher fuel expenses, which surged 83% YOY during the quarter.
Furthermore, management significantly lowered its outlook as volatile jet fuel prices are expected to continue weighing on profitability. American now expects third-quarter adjusted EPS of a loss between $0.70 and $0.10. For full-year 2026, the company cut its adjusted EPS guidance to a range of a loss of $0.65 to a profit of $0.65, down from its prior forecast of a loss of $0.40 to a profit of $1.10 per share.
Despite the weaker earnings outlook, management expects revenue growth momentum to continue in the second half of the year, driven by resilient travel demand and continued strength in premium and corporate bookings.
Also, the consensus EPS estimate of $0.20 for fiscal 2026 reflects a decline of 44.4%, while the EPS estimate of $2.53 for fiscal 2027 indicates a substantial rise of 1,165% YOY.
What Do Analysts Expect for American Airlines Stock?
Recently, Citigroup reiterated its “Buy” rating on American Airlines but lowered its 12-month price target to $19 from $22 following the airline’s second-quarter earnings report. While Citi remains constructive on American Airlines’ long-term fundamentals, including resilient travel demand and commercial execution, it believes higher fuel costs will weigh on near-term profitability, prompting the lower valuation target.
Plus, on July 7, Melius Research downgraded American Airlines to “Hold” from “Buy,” with its price target at $19.
Overall, AAL has a consensus “Moderate Buy” rating. Of the 24 analysts covering the stock, 11 advise a “Strong Buy,” 12 suggest a “Hold,” and one advises a “Strong Sell” rating.
While the average analyst price target of $19.77 suggests an upside of 36.6%, the Street-high target price of $25 suggests that the stock could rally as much as 72.8%.
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www.barchart.com On the date of publication, Subhasree Kar did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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