Goldman downgrades American Airlines and JetBlue, citing slower recovery, higher fuel prices

Published Wed, Oct 6 20216:42 AM EDTUpdated Wed, Oct 6 20211:58 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

A slowdown in the travel industry's recovery and higher fuel prices could weigh on airline stocks, including American Airlines , according to Goldman Sachs. Analyst Catherine O'Brien lowered her near-term outlook for the industry, saying the slowdown for air travel in the late summer due to the delta variant and higher fuel prices could lead to a weak winter for airlines. The analyst also cited later-than-expected recoveries for corporate and international travel. "Our lower revenue expectations combined with the higher price of jet fuel and inflationary non-fuel cost pressures drive our Dec Q outlook to an adjusted net loss of $1.5 billion from a $350 million profit previously and our 2022 adjusted net income forecast of down 18% to $8.1 billion," the note said. O'Brien downgraded American to sell from neutral, saying the slowdown was making the airline's debt load a bigger concern. "We expect AAL shares to underperform as its relatively higher operating leverage weighs on its profitability recovery given our views on capacity/pricing. American's higher operating leverage is in part due to its relatively higher leverage over the medium-term, despite our assumption that the company meaningfully delevers over the next several years," the note said. American's exposure to business and international travel, which are recovering more slowly than domestic leisure travel, could make its debt payments have a bigger impact on profits than it would for other airlines, Goldman said. Shares of American are up 36% year to date, but the stock is still well below where it was before the Covid sell-off in March 2020. Goldman lowered its price target for American by $1 per share to $18 per share. The new target is 16% below where the stock closed Tuesday. Goldman also downgraded JetBlue to neutral from buy, in part because of its partnership with American. Despite the downgrades, O'Brien said she is still positive on the airline industry long term. -- CNBC's Michael Bloom contributed to this report.

An American Airlines plane lands at the Miami International Airport on June 16, 2021 in Miami, Florida.

Joe Raedle | Getty Images

A slowdown in the travel industry's recovery and higher fuel prices could weigh on airline stocks, including American Airlines, according to Goldman Sachs.