KGI Research Singapore

Singapore's leading broker offering Futures, FX, Equities and Wealth Management.

5 October 2023: Wealth Product Ideas

Trade Idea: American Airlines (AAL US)

  1. Despite promising financial results in 2Q2023, the company’s share price remains near its yearly low, primarily due to the surge in aviation fuel prices.
  2. Fuel prices have increased by 10.08% since mid-August 2023, posing a significant impact on the company’s profit margins. Fuel expenses account for 27% of the company’s operating costs.
  3. AAL has demonstrated resilience in the face of significant fuel price hikes during the 2nd and 3rd quarters of 2022, indicating the potential for considerable profits despite elevated fuel costs.
  4. AAL holds a slight pricing advantage over its competitors Delta and United Airlines, suggesting the possibility of increasing prices to offset heightened fuel expenses.
  5. The management is actively working on debt reduction, successfully decreasing total debt by USD 387 million in 2Q2023. AAL has achieved nearly two-thirds of its target to trim down total debt by USD 15 billion by the end of 2025.
  6. As of the end of the last quarter, AAL’s total available liquidity stands at approximately USD 14.9 billion.
  7. The company’s net debt to adjusted EBITDAR ratio has improved from 6.7 times in 4Q2022 to 3.7 times in 2Q2023, in line with industry norms.
  8. Given the recent surge in Credit Default Swap (CDS) spreads, investors may consider Credit Linked Notes (CLN) for higher yields and Fixed Coupon Notes (FCN) with downside protection.

Note: Pricing provided is indicative only. For updated pricing, please contact us directly.

Payout Scenarios:

Investors receive corresponding interest payments every month and;

  • KO Early Redemption: Principal + KO returns (KO event occurs only when the closing price of all underlying securities is higher than the knock-out price)
  • Maturity Redemption: If no KO event occurs, the payout will be:
    • If the final price of all underlying is higher than or equal to the strike price, investors will receive 100% cash return on their principal, along with the final interest.
    • If the final price of one or more underlying is lower than the strike price, investors will receive 100% of their principal in the form of shares of the worst-performing stock and will also receive the final interest.

(Source: Bloomberg)

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