We recently compiled a list of the Jim Cramer Talked About These 6 Airline Stocks. In this article, we are going to take a look at where American Airlines Group Inc. (NASDAQ:AAL) stands against the other airline stocks that Jim Cramer has talked about.

Jim Cramer, the host of Mad Money, recently discussed the current state of airline stocks, many of which have seen impressive gains in recent months.

“I always say that these typically make better trades than investments, they’re very different. So, after this kind of run, my gut tells me maybe to ring the register before the music stops and the light comes on. But I’m also open to the idea that maybe things, things can change. If there’s reason to believe that the airlines are suddenly less cyclical, less boom and bust, then maybe this time really is different.”

Cramer identified a few key factors driving the surge in airline stocks. Earlier this year, the airline sector was weighed down by concerns over consumer spending. While these concerns have not entirely dissipated, the Federal Reserve’s rate cuts have reduced some of the pressure. Cramer pointed out that while consumer spending has cooled from last year’s levels, travel has remained a consistent area of demand. He said that consumer sentiment has also been improving over the past few months, providing further support for this view.

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One of the most significant positive changes for the airline industry, according to Cramer, is the resurgence of business travelers post-pandemic. Business travelers tend to be less price-sensitive than leisure travelers, which provides a reliable revenue stream for airlines. He went on to say:

“I’m much more impressed by some big structural change in the industry that many people aren’t noticing. The single most important positive development for the airline over the past few months is the fact that domestic airline capacity has stopped going up as much as in previous years.”

He said that after the pandemic, airlines began ramping up their route offerings to capitalize on the surge in demand, known as the revenge travel boom. However, as Cramer explained, this expansion of capacity has historically been problematic for the industry. During boom periods, airlines add too many routes and flights, but when demand slows, they are left with excess capacity, which erodes their pricing power.

This, in turn, leads to lower profitability. In contrast, Cramer observed that since the first half of 2024, the airlines have been much more disciplined, with capacity growth slowing considerably. While capacity grew around 7% in the first half of the year, it appears that in the second half, the growth will be in the low single digits.

Cramer also pointed out that part of the reason for this newfound capacity discipline is that many low-cost carriers, which have been a major driver of supply growth in the past two decades, are now struggling.

So, can airline stocks continue their upward trajectory? Cramer believes the strength in the sector can persist as long as the airlines maintain their discipline with capacity management. However, he expressed some uncertainty about how long this trend will last. For now, though, he said that the airlines are saying the right things, with all the major players appearing to act in concert in a way Cramer has never seen before.

“In the end, the airline stocks have been white hot for months now, in part because the economy’s doing better, but mainly because the industry stopped adding new planes willy-nilly and it finally gave them pricing power. The bottom line: As long as the airlines don’t add too many new flights, I think the major carriers like United, Delta, and American, they can keep on flying.”

Our Methodology

For this article, we compiled a list of 6 stocks that were discussed by Jim Cramer during the episode of Mad Money on December 9. We listed the stocks in ascending order of their hedge fund sentiment as of the third quarter, which was taken from Insider Monkey’s database of 900 hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

American Airlines Group Inc. (NASDAQ:AAL)

Number of Hedge Fund Holders: 41

Talking about how American Airlines Group Inc. (NASDAQ:AAL) stock has managed to rise over the past months, Cramer said:

“Even some of the… majors have made great moves. American Airlines, turn around project… has shot up nearly 90% from its August lows.”

American Airlines (NASDAQ:AAL) operates as a major network air carrier, offering scheduled air transportation services. During its third-quarter update, management expressed confidence in the company’s performance for the holiday season. They noted strong strength in bookings for the holidays and observed similar positive trends during Thanksgiving. Management remains optimistic about the company’s outlook for the fourth quarter based on these booking patterns.

According to AAA, an estimated 119.3 million people are expected to travel 50 miles or more from home between Saturday, December 21, and Wednesday, January 1. This projection represents an increase of 3 million travelers compared to the previous year and exceeds the previous record set in 2019 by 64,000.

Additionally, American Airlines (NASDAQ:AAL) generated $2.4 billion in free cash flow through the first three quarters of the year. Looking ahead, the company expects to take delivery of 17 new aircraft in 2024, with seven of those aircraft scheduled to be delivered by the end of the year. Additionally, the company plans to grow its capacity by approximately 1% to 3% in the fourth quarter, with a full-year capacity increase expected to range between 5% and 6%, consistent with prior guidance.

Overall, AAL ranks 4th on our list of airline stocks that Jim Cramer has talked about. While we acknowledge the potential of AAL as an investment, our conviction lies in the belief that 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 but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.