American Airlines (AAL)

1. American Airlines (AAL) American Airlines (AAL)

2. Agenda • Industry Analysis • Company Analysis • Company Fundamentals • Chart Analysis • Competitors • Competitive Analysis • Final Recommendation

3. Industry Analysis|CompanyAnalysis|CompanyFundamentals|Charts|Competitors|Recommendation Industry Analysis (Airline Industry) Industry Outlook Overview Of Airline Industry in USA • 100 certified passenger airlines operating over 11 million flight departures per year • Accounts for about 1/3rd of global air traffic • 815.3 million scheduled passengers traveled on USA airlines in 2012. • Commercial aviation contributes more than 8% of USA’s GDP. • The number of passengers will grow to 1.2 billion in 2032, according to the FAA's annual forecast. • Carriers expected to make a profit of $6.3 billion in 2014 • US Airline Industry to remain profitable for two more decades • Oil price volatility remains a significant challenge • http://www.nasdaq.com/article/airline-industry-stock-outlook-dec-2013-industry-outlook-cm310424#ixzz2vEkdMZEL With a Zack’s industry rank of #16, and expected profit growths, the airline industry looks strong for the next few years. http://www.nasdaq.com/article/airline-industry-stock-outlook-dec-2013-industry-outlook-cm310424

4. Industry Analysis|CompanyAnalysis|CompanyFundamentals|Charts|Competitors|Recommendation Company Analysis (American Airlines) Overview eBay Revenue & Market Share • Recent merger with US Airways has re-established AAL as a leader in airline industry in USA • New Parent Company (American Airlines Group) • Based out of Fort Worth, TX. • 626 fleets with 273 destinations at the moment • Stock price up 58.2% since merger and relisting in December 2013 Improvements From 2012 • PRASM (Passenger Revenue per Available Seat Mile) in Dec 2013 increased 9% YoY • RPM’s (Revenue Passenger Miles) increased by 11.9 billion (5%) YoY from Dec 2012. A recent merger has helped an otherwise bankrupt AAL re-emerge in the airline market, with a higher market share and more efficient trips and PRASM, RPM Values. http://en.wikipedia.org/wiki/American_Airlines http://hub.aa.com/en/nr/pressrelease/american-airlines-group-reports-december-traffic-results http://hub.aa.com/en/nr/pressrelease/american-airlines-group-reports-fourth-quarter-and-full-year-2013-financial-results

5. Industry Analysis|CompanyAnalysis|CompanyFundamentals|Charts|Competitors|Recommendation Company Fundamentals Essential Statistics • Beta: 2.91 • Current Ratio: 1.04 • Quarterly Revenue YoY Growth: 24.1% • Forward P/E: 7.38 • Market Cap: $18.4 billion (Large Company) • Average Volume: 8.7m/ 10 days Consistently Rising Revenues, but negative net profit margin.

6. Industry Analysis|CompanyAnalysis|CompanyFundamentals|Charts|Competitors|Recommendation Chart Analysis Source: Google Finance

7. Industry Analysis|CompanyAnalysis|CompanyFundamentals|Charts|Competitors|Recommendation Competitors Revenue YoY Change Main Competitors • AAL: 7.60%United: 3.03%Southwest: 3.58% • Delta Airlines and United Continental hold largest market shares ahead of AAL. • ALK, DAL and HA experiencing consistent, fast-paced growth. Delta, Alaska, United and Southwest are AAL’s major competitors. Source: Google FInance

8. Industry Analysis|CompanyAnalysis|CompanyFundamentals|Charts|Competitors|Recommendation Competitive Analysis Competitive Analysis Catalysts • Positive synergies after merger • World’s largest airline with greatest US market share by revenue (28.7%) • Larger customer platform • Inducted 13 new Airbus A320 family aircraft, 2 Airbus A330-200 aircraft, 5 Boeing B737-800 and 1 Boeing B777-300 aircraft into its fleet in 2013 • Began more international nonstop flights, whilst most domestic airlines provide short domestic flights • New seasonal summer services to key holiday destinations: Spain, England, Belgium, and Portugal from Charlotte, NC • Partnership with Oneworld Airlines • Key partners including British Airways, Malaysia Airlines, Qatar Airways • Delays in integration after merger have been or are in the process of being solved • Completed technology fixes to let fliers book trips on both its American and US Airways units • Adding seats on some jets • More revenue generation through addition of fee-based services such as early boarding and more legroom • CEO Doug Parker expecting $1 billion in new revenue and savings by 2015 • Significantly speedier at reaping positives after transaction than industry comparables such as merger between Delta and Northwest (3 years to reach $1 billion milestone) • 2014E annual profit at $3.5 billion (Bloomberg analysts) The positive synergies from the merger are likely to fully surface by 2015. Source: Bloomberg, Wikipedia

9. Industry Analysis|CompanyAnalysis|CompanyFundamentals|Charts|Competitors|Recommendation Final Recommendation Recommendation for AAL • Positive synergies, in particular breaking the $1 billion milestone in revenue and costs synergies, are expected to fully surface by 2015 • Hence, steady long term revenue growth to be expected during integration process • Although AAL’s forward P/E ratio is at 7.38 which is considerably lower than its competitors, investors are gaining more confidence in positive analysts’ estimates, and the stock’s P/E is expected to increase • Expectations for US airlines as a whole are high for 2014 as the economy improves • Final recommendation for AAL: BUY Considering the positive outlooks for the US airlines industry and AAL in particular, the final recommendation is BUY.