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Posted on 8 October 2011 | 5,973 views

American Airlines Stock AMR is Crash Landing

The weakness in airline stocks such as US Airways (Stock Symbol: LCC), Republic Airways (Stock Symbol: RJET) and American Airlines (Stock Symbol: AMR) was detailed in The Wall Street Journal and that surely played a major role in American Airlines stock falling more than 33% for the day, dropping 98 cents to $1.98 a share when the article was released.

The airline industry has seen plenty of turbulence over the years. Issues regarding everything from demand to fuel expenses plague the industry. Now, Southwest Airlines (Stock Symbol: LUV) offered a glimmer of hope for the airline industry.

The no baggage fee airliner reported strong numbers for September. The company said its total September traffic rose 6.4% to more than 7.9 billion revenue passenger miles, compared to 7.5 billion revenue passenger miles last year. Total September capacity rose 3.2% to 10.2 billion available seat miles from last year. Furthermore, the percentage of seats filled with passengers (load factor) increased 2.3% from last year, while passenger revenue per available seat mile increased 12%. To help keep demand strong, Southwest also rolled out holiday fare specials, with one way tickets costing only $59.

Shares of Southwest Airlines have been struggling this year to say the least. As the chart above shows, Southwest Airlines is down 40% year-to-date, and has underperformed other airliners such as United Continental Holdings (Stock Symbol: UAL) and Alaska Air Group (Stock Symbol: ALK). On a positive note, Southwest Airlines has been keeping pace with Delta (Stock Symbol: DAL) and JetBlue (Stock Symbol: JBLU), while outperforming American Airlines this year. Earlier this week, shares of American Airlines tumbled the most since 2003, as bankruptcy rumors swirled.

If American Airlines does survive, it will be at a low stock price with a high level of debt for a long, long time. Year to date, the stock is off almost 69% — starting the year at $7.92 per share and closing Friday October 7, 2011 at $2.50 per share. Net debt is over $12 billion and market capitalization is only $663 million. About $1.8 billion of the debt matures next year, so American Airlines will have to tap into the credit markets to refinance and that will not be cheap. According to The Wall Street Journal article, “The cost of insuring its debt against default is of almost Greek proportions.”

Other numbers are just as unsettling — American Airlines margin of earnings before interest, tax, depreciation, amortization and aircraft leasing was one-third that of United-Continental’s and half that of Delta’s. Return’s on asset and investment are negative and the short float, however, is sky high at 19.17 percent — a short float of 5 percent is considered to be high.

The trends are certainly not the friends of the shareholders of American Airlines. It is trading more than 40 percent below its 20, 50 and 200 moving averages and these are vectoring in a negative direction, too. The Bollinger Bands are bearish, needless to say and with a 33% drop and the Candlestick Patterns have very long, very negative bodies.

The two articles in The Wall Street Journal — back to back — did not help the stock either.

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