American Airlines Group (NASDAQ:AAL) can’t find enough workers to fly its full schedule, and that is weighing on the stock. Shares of American fell 12.5% in June, according to data provided by S&P Global Market Intelligence, as the airline trimmed its summer schedule.
What a difference a year makes. Last summer, the airlines were offering buyouts and early retirement packages as they looked to cut costs and weather a pandemic-induced drop-off in travel demand.
Nearly 39,000 out of a total workforce of 140,000 took American up on those offers, a move that seemed prudent at the time. But with the arrival of coronavirus vaccines, travel has bounced back much faster than many expected, and airlines are now finding it hard to quickly rebuild their operations.
In June, American trimmed about 950 flights from its schedule in an attempt to avoid strains on its operations that could cause a cascade of cancellations. The move was proactive, designed to avoid a public relations nightmare that comes with a system meltdown. But it does speak to the stress on the airline’s business right now.
It’s hard to fault the airlines’ initial decision last year to play it conservative, but given the way events have unfolded, that decision is now coming back to haunt them. Delta Air Lines saw a cascade of cancellations over the April Easter weekend, Southwest Airlines in recent weeks has canceled thousands of flights, and now American is cutting back out of fear it will be forced to do the same.
In the near term, this means the airlines will not be able to capture all of the much-needed revenue available to them. Given the specialized nature of an airline workforce, there will not be an easy or quick solution. And over time, that could lead to higher wages and with them higher costs.
The good news is airline demand is recovering nicely post-pandemic. But American investors in June got a reminder that the industry still faces turbulence.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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