American Airlines Group Inc. (NASDAQ:AAL)’s first retrofitted Boeing 777-300ER took off on its maiden commercial flight on September 2 from New York to Buenos Aires.
The revamped aircraft used on long-haul flights has been fitted with more premium seats as the airline looks to chase higher-spending travelers.
Pixabay/Public Domain
First-class is being phased out of these planes, while the number of business-class seats is being raised. The number of premium seats will increase from 116 to 144, representing 44% of the total. These include 70 Flagship Suite business-class seats, 44 Premium Economy seats, and 30 Main Cabin Extra seats.
Why Now
Legacy carriers in the U.S. have been shifting capacity towards premium travel for the past several years to drive up profits as high-end product sales have been outpacing price-sensitive offerings at some of the country’s leading airlines.
During Q2, premium travelers represented nearly half of American Airlines Group Inc.’s ticketed revenue despite accounting for only 30% of the seats.
Last month, the U.S. carrier announced plans to increase premium seating on its narrowbody flights to 40% over the next few years from its current level of 25%.
Upgrades to all 20 planes in the Boeing 777-300ER fleet are expected to be completed sometime in 2027. The aircraft currently has 52 business-class seats and 8 Flagship First seats, which are being eliminated under the revamp and will no longer be sold beginning November 19.
Bull Case
Premium demand is growing faster than economy demand across the industry. The revamp will allow the airline to have more high-margin seats in the aircraft without having to reduce the total number of seats.
Increasing the number of business-class seats in these planes is also likely to contribute towards improved operational performance through higher revenue per available seat mile.
The move reflects American Airlines Group Inc.’s capital discipline as it is retrofitting its existing fleet rather than investing in buying new planes.
The company’s operating margin came in at 2.7% during the second quarter, while pre-tax margin stood at 0.6%. Even a moderate shift towards business class seats offering a high yield could potentially strengthen profitability.
Bear Case
Airlines Group Inc.’s balance sheet remains its biggest constraint, considering its high level of debt. The company has a B+ credit rating from Fitch, indicating material default risk. In contrast, Delta is rated at BBB, denoting a moderate level of risk.
The airline’s aircraft and fuel-related expenses increased 83.3% year-over-year during Q2, which prompted the company to cut its earnings forecast for the full year. Persistently high fuel prices could impact American’s premium capacity initiative.
Despite posting a record quarterly revenue of $16.7 billion, shares fell 8% following the earnings call on July 23, reflecting investors’ focus on margins and leverage over top-line gains.
Skeptics also argue that peers like United Airlines and Delta Airlines have already pivoted towards premium, and that this initiative will only close the gap, rather than creating a competitive advantage.
Hedge Fund Ownership Trends
According to Insider Monkey, 42 hedge funds held a stake in Airlines Group Inc. at the end of the second quarter, remaining unchanged from Q1.
Orbis Investment Management had the largest holding in the company with shares worth approximately $292 million as of June 30, 2026, a significant jump from $24 million at the end of Q1.
The 12x sequential increase appears less a case of rebalancing and more like conviction-building, with the fund moving from its smaller position in Q1 to a meaningful bet in Q2.
Citadel Investment Group held the second slot with a call option position of 12,532,300 shares in the company worth over $226 million. Note that this position is both leveraged and time-bound rather than a clear equity stake.
Other major stakeholders include Slate Path Capital, Appaloosa Management LP, and D E Shaw.
Closing Take
The retrofit is good progress, but can margins follow? Profitability was significantly pressured in Q2 due to a surge in fuel costs, and the premium bet alone would not be sufficient to offset the challenge. Moreover, American Airlines remains highly leveraged. Until debt reduction catches up with the revamp, the stock is a hold, or a speculative buy for investors confident about a margin recovery.
The company’s next test comes in late October when it announces third-quarter results, which will likely factor in the trends related to fuel costs and the revamp’s early results.
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