AMR Worth $6.20 Despite Slump on October Traffic & Weaker Market

Echoing the broader market apprehension, American Airlines (NYSE:AMR) stock finished the past week about 10% lower. During the week, the airline released its October traffic results along with peer Delta Airline (NYSE:DAL) and expanded its loyalty programs, but neither of these helped lift sentiment for the stock.

See our full analysis for American Airlines

American witnessed just over a 1% decline in the October passenger traffic with system capacity down 0.7% on a year-over-year basis. Capacity declines were led by domestic markets where seat miles were curbed by 2% while capacity on international routes was up 1.5% due to increased Atlantic and Pacific flying. Lower capacity resulted in better fewer empty seats on domestic routes, however international occupancy suffered as traffic gains failed to keep pace with increased capacity. This resulted in 0.3% lower system loads, y-o-y. (See American Airlines Reports October Traffic, Nov 3)

New Partnerships To Expand Frequent Flyer Benefits

In other noticeable developments last week, American enhanced its loyalty program known as AAdvantage by entering into partnerships with Alaska Airlines and Kingfisher Airlines.

The airline has launched a frequent flyer agreement with Kingfisher Airlines, allowing members of each airline’s loyalty program to earn and redeem miles on each other’s network (See American Airlines Press Release, Nov 2). American is also expanding its relationship with Alaska Airlines with a new agreement that provides elite status members of each carrier’s loyalty program with the ability to enjoy benefits like priority check-in and boarding, baggage fee waive off, exclusive security screening lanes and preferred seating (See American Airlines Press Release, Nov 7).

The newly forged partnerships help American in expanding its frequent flyer program to include more sources of earning and redeeming air miles, besides improving benefits for high value customers. While this goes a long way in building customer loyalty, frequent flyer programs can also generate ancillary streams of revenues when the customer redeems the accumulated miles such as baggage fee, reservation change fee, payment for a preferred seat or any redemption charges.

We currently have a Trefis price estimate of $6.20 for American Airlines.

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