Image source: American Airlines.

This improved outlook was supported by the latest TSA data on passenger screenings. More than 500,000 people passed through TSA checkpoints this Thursday, compared with fewer than 400,000 just a week earlier. Passenger numbers are still down 81% year over year, but that’s a big improvement from being down 96% in mid-April.

Setbacks are likely

As encouraging as the recent update was, investors shouldn’t rush to buy American Airlines stock. American’s management has had a tendency to be overoptimistic in recent years: in 2017 and 2018, CEO Doug Parker frequently predicted that the airline would never again lose money. That prediction obviously didn’t work out too well!

In this case, an uptick in bookings for the peak summer travel season is likely driving the recent reduction in cash burn. Other airlines have observed similar booking trends but are being more cautious in projecting what that means going forward. Most airlines (including American) are waiving change fees right now, so it’s still possible that customers who have booked tickets in recent days will ultimately cancel their travel plans^[4].

More broadly, American Airlines faces two major threats to its hoped-for recovery in the months ahead. First, business travel is recovering far more slowly than leisure travel, as cash-strapped companies look to cut costs and others ban non-essential travel to limit the risk of infection among their employees. Without a stronger rebound in business travel, the recovery could falter after the summer vacation season. Furthermore, business travelers are by far the most profitable customers for legacy carriers like American^[5].

Second, a potential “second wave” of the pandemic could drive another downturn in air travel. The number of COVID-19 cases and hospitalizations has been rising quickly in some states that reopened in early May, including Texas and North Carolina: home to American’s two largest hubs. This worrisome trend could turn into a big headache for American Airlines if it continues.