American Airlines Group Inc. (NASDAQ:AAL) seeks to close its profitability gap with rivals Delta Air Lines and United Airlines. Last year, United generated about $3 billion more in profit than American, while Delta earned roughly $5 billion more.
American Airlines CEO Robert Isom has said the company’s long-term plan is to close that margin gap.
At just 5.81x forward earnings, AAL trades at a steep discount to Delta’s 9.61x and United’s 7.63x.
Why the Gap Exists
American Airlines has built one of the largest flight networks in North America, so its challenge isn’t scale, but rather a revenue gap. Delta and United invested in premium experiences much earlier to attract higher-spending travelers.
American has also faced operational and financial hurdles. On the operational side, for instance, It ranked behind both Delta and United in on-time performance during the first half of 2026. On the financial side, its earnings continue to be weighed down by a debt load of roughly $35 billion.
The company’s strategy centers on several key initiatives:
Expanding premium offerings
American is investing heavily in premium travel in an effort to increase higher-margin revenue. As part of this effort, the carrier is upgrading cabins across its long-haul fleet and adding more premium seats.
Additionally, the airline has announced that it has struck a deal with SpaceX’s (SPAX.PVT) Starlink to equip more than 500 of its jets with Wi-Fi service and is considering adding seatback entertainment screens on its narrow-body fleet. The goal is to encourage more travelers to purchase premium products.
Modernizing the fleet
American has made fleet renewal a central piece of its premium strategy. The airline is considering a new wide-body aircraft order to replace aging aircraft and support future international growth. Newer aircraft offer improved operating efficiency and enhance the traveler experience.
Improving operational reliability
In a bid to boost operational performance, American’s management is spreading flight schedules more evenly across major hubs as opposed to relying on tightly banked connections.
This strategy is designed to reduce delays and improve on-time performance. The airline is also using AI to predict maintenance issues before they disrupt operations, with this helping improve reliability and reducing costs linked to aircraft downtime.
Growing loyalty and corporate travel
American continues to expand its loyalty program and premium airport experience. The airline plans to build the largest Admirals Club lounge in its network at Dallas Fort Worth International Airport.
Moreover, it plans to open a new grab-and-go lounge and an enhanced Flagship check-in area. At the same time, management is working to grow its loyalty program and increase premium seat purchases with business travelers.
Disciplined capacity and cost management
Alongside its revenue growth and margin expansion initiatives, American remains focused on financial discipline. The airline has been able to reduce its debt from roughly $54 billion to around $35 billion.
The company still carries one of the industry’s largest debt loads, so this makes continued deleveraging an important part of the turnaround efforts.
CFO Devon May said the company will measure success by closing its revenue and unit revenue gaps while maintaining operational efficiency. Reducing debt should give the carrier greater financial flexibility over the long term.
However, the debt reduction efforts face big risks: higher jet fuel prices could pressure margins and elevated interest rates increase the cost of servicing the huge debt load.
Turnaround Potential and Execution Risks
American’s investments in premium seating, fleet renewal, and operational reliability could gradually narrow the company’s margin gap with rivals Delta and United. Moreover, its discounted valuation leaves room for upside if profitability improves faster than investors currently expect.
American’s turnaround, however, depends on almost flawless execution, yet risks abound. Higher jet fuel prices could offset some of the margin gains, and American’s higher leverage leaves earnings more sensitive to rising borrowing costs.
Additionally, American’s success story also depends on its ability to improve faster than its rivals Delta and United.
Bottom Line
American Airlines has set out to improve profitability by expanding premium offerings, modernizing its fleet, strengthening operational reliability, and reducing debt. Investors will likely monitor upcoming Q2 earnings for signs of improvements before concluding the turnaround is taking hold.
According to Insider Monkey’s database, 42 hedge funds had positions in American Airlines stock at the end of Q1 2026, down from 49 in the previous quarter. This was considerably lower than both Delta Air Lines, Inc. (NYSE) and United Airlines Holdings, Inc. (NASDAQ:UAL), which were each held by 68 hedge funds. Hedge fund interest in Delta Air Lines, Inc. (NYSE:DAL) increased slightly from 67 funds in the previous quarter, while United’s count declined sharply from 79.
Among American Airlines investors, Renaissance Technologies increased its stake by 570%, Two Sigma Advisors raised its stake by 18%, and D. E. Shaw reduced its stake by 39%. Meanwhile, short interest for the stock stood at 57.85 million shares, or 8.81% of the public float, as of June 30. This was considerably higher than United Airlines’ 20.96 million shares, representing 6.51% of its float, and Delta Air Lines’ 29.08 million shares, equivalent to 4.46% of its float.
Together, the combined hedge fund interest and short interest data reflect how American Airlines remains the least favored of the three. The upcoming results could therefore prove critical in determining whether the company can begin closing this sentiment gap.
While we acknowledge the risk and potential of AAL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AAL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: 10 Best Low Priced Technology Stocks to Invest In and 12 Best Stocks to Buy for the AI Boom in the Second Half of 2026.
Disclosure: None. Follow Insider Monkey on Google News.
Hedge Fund Resource Center