Investor Interest in American Airlines Won't Take Off
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What is the main topic discussed in this episode?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York. American Airlines might seem like a good investment, but despite some attractive numbers, Wall Street sees turbulence and is looking elsewhere to score profits in the friendly skies. We'll explain why and where in a moment. First, these money and market stories you should know. A new report by labor analytics firm Burning Glass Technologies that studied the underemployment of college graduates found that engineers had only a 29% probability of being underemployed. Meanwhile, graduates of liberal arts areas like philosophy, foreign languages, ethnic and gender studies, history and English all have a better than even chance of landing a job that fits their educational level.
The group looked at real-time job postings and more than 4 million resumes from people who graduated college between 2000 and 2017 and found that on average 43% of college graduates are underemployed in their first job. Of those, roughly two-thirds remain in jobs that don't require college degrees five years later. While the average starting salary for a bachelor's degree holder employed in a job that actually requires such a degree is $46,000 a year, Under-employed graduates make an average of $36,000. And the Wall Street Journal heard on the street team reports that while October's stock market volatility and sharp sell-offs have some keeping a fearful eye on their portfolios and their 401ks leery of a continued downward trend, the folks at Morgan Stanley say not so fast.
They ran the numbers of the S&P 500 over the past 65 years, in the past 27 years of a global stock index, and they found that sharp initial drops are indeed the signature of a typical correction, defined by declines of between 10 and 20 percent in equity prices. If that's the darkness, here's the dawn. On average, recovery follows within six months, and a rally within a year.
You'd think investor attitude toward American Airlines would be sky high. Revenue per passenger has risen, and that's in the face of higher oil prices eating away at third quarter net income. But there's something big casting a shadow over American Airlines. And Wall Street Journal Heard on the Street columnist John Sindrew is here with us to explain. So, John, what's casting a shadow here is Delta Airlines. What is Delta doing so much better than American Airlines?
I mean, to be fair, we talk about Delta a lot in the column, but United is also doing really well.
What quick market headlines set the stage for this American Airlines discussion?
And it's sort of American that, you know, has been struggling of late. Their stock is down about 40% this year, which is a lot. And they had like their worst seven-day streak ever recently.
How does college underemployment data relate to investor sentiment?
And I mean, to be fair, U.S. airlines overall are down because of, you know, oil prices going up and generally the stock market not feeling very optimistic. But clearly there is issues that are affecting Americans specifically. And what we argue in the column is precisely that, that even though the company has been doing some things well, it's still catching up from the merger with U.S. Airways back in 2013. And it just doesn't have the sort of ability to capitalize on the new trends as quickly as the other airlines. And it definitely still carries a huge load of debt. And this at a moment where like investors are really jittery about the market and are sort of punishing uncertainty and rewarding profit margins, cash flows and all these things.
uncertainty is never a good thing to have over your head if your competitors are doing better than you.
Yeah, investors do not like uncertainty, no question about that. And you make a point in your column that you mentioned the better margins that Delta has, also a higher free cash flow yield, and that would give it a lot of momentum if the economy remains strong.
Yes, the issue here being there has been a trend in U.S. airlines recently, and this also includes American, to be fair, which is that they've been collecting a lot of revenues from business and premium cabin. In sort of the airline business model, in the end, business sort of cabins are what create the bigger margins, right?
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:05–2:43
2
What quick market headlines set the stage for this American Airlines discussion?
2:43–2:55
3
How does college underemployment data relate to investor sentiment?
2:55–8:31
4
What do Morgan Stanley’s historical market stats imply for investors now?
8:31–8:34
Speakers
2 identifiedMore from WSJ Your Money Briefing
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