Shares of American Airlines (NASDAQ:AAL) gained over 1% yesterday after the pilots’ union signed on the dotted line by agreeing on the revised terms of the pay contract. As per the new four-year contract, pilots will receive an immediate 21% raise, which increases the annual pay by 46% over the four-year period. The revised pay structure will also boost their 401(k) retirement plan contributions. Year-to-date, AAL stock is up 19%, thanks to the strong demand for air travel post-pandemic.
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A New Pay Contract Could Ease Future Troubles
American Airlines revised its offer after a prior proposal was rejected earlier as it did not match up with the new proposals of rival airlines. The Allied Pilots Association (APA) represents nearly 15,000 pilots, who can now be channelized by AAL for pilot training programs and increasing its pilot staff.
Delighted by the revised compensation, Capt. Ed Sicher, president of APA, said, “The pilots of American Airlines have spoken: It’s time to move forward with a new working agreement that provides substantial monetary gains and quality-of-life improvements.”
Airline companies are facing several hurdles post-pandemic, especially concerning staffing issues. With a surge in travel demand in recent months, air carriers are struggling to maintain optimum flight schedules with unutilized aircraft and pilot shortages.
Recently, United Airlines (NASDAQ:UAL) reached a preliminary contract agreement with its pilots, which includes cumulative salary hikes in the range of 34.5% to about 40% over a four-year period. Similarly, in March 2023, Delta Airlines (NYSE:DAL) approved a new contract that improved pilots’ wages by 34%.
What is the Future of AAL Stock?
On August 17, Goldman Sachs analyst Catherine O’Brien cut the price target on AAL stock to $15 (1.1% downside potential) from $17 while maintaining a Hold rating.
Overall, American Airlines stock has a Hold consensus rating based on one Buy, eight Holds, and two Sell ratings. On TipRanks, the average American Airlines price forecast of $17.99 implies 18.7% upside potential from current levels.
