American Airlines Group Inc (AAL): Are Hedge Funds Right About This Stock?

After a year of extremely low fuel prices and strong airline traffic, most airline companies have witnessed their margins and bottom-line results improve significantly. With persistently low fuel prices throughout 2015, some investors and analysts wrongly anticipated that airline stocks would skyrocket to unimaginable levels. Those airline “bulls” turned out to be wrong, as the NYSE Arca Global Airline Index, which tracks the airline industry, is down by nearly 1% over the past 12 months. This figure would have been even worse if not for the gain of almost 12% achieved in the past month. So why didn’t airline stocks skyrocket as some investors previously anticipated? What were investors worried about? It appears that most investors were concerned over the declining PRASM metric of most airlines, which denotes the passenger revenue divided by available seat miles. In other words, investors were worried about the toughening price war among airlines, which has been partly fueled by lower fuel prices. That being said, let’s now take a look at what billionaires and hedge fund managers think about American Airlines Group Inc (NASDAQ:AAL).

American Airlines Group Inc (NASDAQ:AAL) has experienced a decrease in support from the world’s most elite money managers in recent months. American Airlines was in 76 hedge funds’ portfolios at the end of December. There were 77 hedge funds in our database with AAL holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as McGraw Hill Financial Inc (NYSE:MHFI), PPG Industries, Inc. (NYSE:PPG), and Mylan Inc. (NASDAQ:MYL) to gather more data points.

To the average investor there are a lot of formulas stock traders can use to appraise their stock investments. A duo of the less known formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the elite fund managers can outpace the broader indices by a very impressive amount (see the details here).

As already mentioned, the U.S. airline industry greatly benefited from lower fuel prices in 2015. Nonetheless, this advantage was somewhat offset by a decline in top-line results due to lower airline passenger yields. Recent data shows that U.S passenger revenue and yields for the first three quarters of 2015 declined relative to the same period of 2014. Even so, the low crude oil price environment is anticipated to boost airline operating margins to the highest levels in the past several decades. It is a known fact that the airline industry is highly competitive, so American Airlines Group Inc (NASDAQ:AAL) had to compete with its peers on a market-by-market basis through various price discounts, adjustments in pricing structures, target promotions and loyalty program initiatives. It should be noted that AAL’s aircraft fuel expenses totaled $6.23 billion in 2015, down from $10.59 billion registered in 2014. More importantly, fuel expenses accounted for only 21.6% of the company’s total mainline operating expenses in 2015, compared to a figure of 33.2% registered in 2014.

Keeping this in mind, let’s take a look at the recent action surrounding American Airlines Group Inc (NASDAQ:AAL), as well as discuss the company’s revenue growth in 2015.