American Airlines’ Big Mistake: The Costly Move That Hurt Profits

American Airlines (NASDAQ: AAL) is facing some serious turbulence. Higher costs, a misstep with corporate travelers, and a competitive airline market have put a dent in its financial outlook for early 2025. Investors are understandably nervous, but some experts believe American Airlines still has a chance to turn things around.

So, what exactly went wrong? And can the airline recover from its latest challenges? Here’s a closer look at what’s happening with American Airlines and where it could be headed next.

A Rocky Financial Start to 2025

At first glance, American Airlines’ latest financial report doesn’t seem so bad. The airline pulled in $13.66 billion in revenue in the fourth quarter of 2024—up 4.6% from the previous year. Even better, its net income hit $590 million, and earnings per share (EPS) came in at $0.86, well above the $0.65 analysts had predicted.

But that’s where the good news ends. Looking ahead to the first quarter of 2025, American Airlines expects an adjusted loss per share of $0.20 to $0.40—a much worse outlook than many on Wall Street had hoped for. The airline’s guidance for the full year isn’t much better, falling short of industry expectations.

For investors, this was a major red flag. If the company is already bracing for losses this early in the year, what does that mean for the rest of 2025?

A Corporate Travel Mistake That Cost Millions

Travel for business is one of the main causes of American Airlines’ current problems.

In an attempt to increase income, the airline took a chance in 2023 by attempting to reduce business traveler benefits and discounts. Companies would continue to book flights anyway, and American would profit by providing less discounts.

Rather, it backfired severely. Numerous corporate clients departed, opting to use rival airlines like United and Delta. Even though American Airlines discovered its error swiftly, the harm had already been done. Now, the corporation is rushing to win back these business travelers by reinstating privileges, giving better discounts, and recreating its corporate sales force.

But even with these efforts, American has admitted it could take all of 2025 to fully recover from this misstep.

What Analysts Are Saying—And Why Some Are Still Optimistic

Despite all these challenges, some experts still believe American Airlines has serious growth potential.

Several big financial firms have actually upgraded their stock ratings for AAL in recent weeks:

• Jefferies and TD Cowen both upgraded their ratings to “buy,” saying the airline could benefit from better domestic airfare pricing, stronger partnerships with credit card companies, and the return of corporate travelers.
• Citigroup raised its price target for American Airlines stock to $21.50, suggesting it could see a 65% increase from its current price.

That’s a big deal—these analysts believe that while the next few months might be rough, American Airlines could still come out on top in the long run.

Rising Costs: A Major Headache for Airlines

Of course, corporate travel isn’t the only problem American Airlines is dealing with. Costs are rising across the board, and that’s making it harder for the company to stay profitable.

Some of the biggest cost pressures include:

• Higher labor costs: The airline recently signed new contracts with pilots and flight attendants, which means higher wages and increased benefits.
• Supply chain issues: Aircraft parts and maintenance costs are on the rise, making it more expensive to keep planes running.
• Fuel prices: While fuel costs have been relatively stable, any spike in prices could put even more pressure on American’s bottom line.

On top of that, American is forecasting a first-quarter loss of up to $0.40 per share—much worse than the $0.04 loss analysts had originally expected.

How American Airlines Plans to Turn Things Around

Despite these challenges, American Airlines isn’t just sitting back and hoping for the best. The airline is making some big strategic moves to strengthen its business for the future.

1. A Major Credit Card Deal with Citi

American Airlines recently extended its 37-year partnership with Citi for another decade. Starting in 2026, Citi will become the exclusive issuer of American’s AAdvantage co-branded credit card in the U.S.

This deal is expected to bring in billions of dollars in revenue over time, giving American a major financial boost in the years ahead.

2. Expanding International Routes

American Airlines is investing heavily in long-haul travel. It has ordered new Airbus A321XLR aircraft, set to be delivered in 2025, which will allow it to expand its international routes.

With demand for international travel still strong, this move could help American Airlines generate more revenue from global travelers.

3. Cutting Costs and Improving Efficiency

American is also looking at ways to reduce costs without hurting customer experience. By streamlining operations, negotiating better deals with suppliers, and improving efficiency, the airline hopes to offset rising labor and maintenance costs.

Can American Airlines Make a Comeback?

At the moment, American Airlines is dealing with serious challenges, and its early 2025 outlook isn’t exactly inspiring confidence. But that doesn’t mean the airline is doomed.

If it can successfully win back corporate travelers, control costs, and expand its international operations, there’s a good chance that American Airlines could stage a strong comeback in the next couple of years.

Still, the airline industry is unpredictable. If economic conditions worsen or travel demand weakens, American Airlines could face even more headwinds.

For now, it’s a waiting game—but one thing is clear: American Airlines isn’t giving up without a fight.