American Airlines Stock Jumps 16% as Management Finally Shares Some Good News @themotleyfool #stocks $AAL

June has been an extremely volatile period for American Airlines (NASDAQ:AAL[1]) stock. Shares of the U.S. airline giant soared in the first week of the month, including a bizarre 41% surge on June 4[2]. The stock then gave up some of its gains over the past week, plummeting 29% over a three-day period from Tuesday to Thursday.

American Airlines stock was on the move again on Friday, following a bullish investor update. The shares rallied 16% to end the week at $16.74.

AAL Chart

Data source: YCharts[3].

In contrast to the prior week’s rally, at least there was some meaningful positive news to justify American Airlines stock’s big gain on Friday. Nevertheless, investors appear to be too optimistic about the company’s medium- and long-term prospects.

Finally, a real sign of improvement

The massive rally in American Airlines stock on June 4 was sparked by a press release indicating that the carrier planned to restore 55% of its normal domestic schedule in July: up from just 20% to 25% in May. This seemed to confirm a growing belief among investors that air travel demand is rebounding rapidly from the coronavirus-induced downturn.

That said, just a week earlier, management had reiterated its guidance for the second quarter, calling for daily cash burn to average $70 million during the period (excluding payroll support funds provided under the CARES Act). This implied total cash burn of more than $6 billion in the current quarter alone. Thus, improving traffic results didn’t seem to be helping the bottom line.

On Friday, American Airlines provided another investor update. The airline disclosed that its load factor improved sequentially in the first eight days of June relative to May, even as it began to restore some capacity. Management also said that net bookings have been positive since mid-May across all parts of the booking curve (i.e. both last-minute purchases and bookings for travel months from now).

Most importantly, management noted that cash burn was on track to moderate to $40 million per day in June, compared to its original estimate of $50 million per day for the final month of the quarter. That’s a significant, tangible improvement — although it means the company is still burning more than $1 billion of cash each month. Management hopes to reduce cash burn to zero by year-end.

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