American Airlines shares will drop 28% in 2025, but billionaire David Tepper is betting on a change of course

Down more than 28% in 2025, American Airlines (AAL) stock has lagged the broader markets by a wide margin this year. However, David Tepper, the billionaire hedge fund manager at Appaloosa Management, added 9.25 million AAL shares to his portfolio in the third quarter.

The equity stake represents a bold contrarian bet on the struggling aircraft carrier, given the volatile macroeconomic environment. This investment indicates that Tepper is willing to bet big on American Airlines, even as the airline faces challenging conditions. Over the years, Tepper has built his career identifying value in distressed companies that others avoid.

Its track record of generating outsized returns on Wall Street suggests this American Airlines position deserves closer scrutiny, especially now with the stock trading near multi-year lows.

Last month, American Airlines reported better-than-expected third-quarter results and raised its full-year profit forecasts. It reported revenue of $13.69 billion and an adjusted loss of $0.17 per share, compared with estimates of $13.63 billion and $0.28 per share, respectively.

In the current quarter, AAL forecasts adjusted earnings per share between $0.45 and $0.75, which is higher than Wall Street’s current estimate of $0.31. According to the median estimate, American Airlines will end 2025 with earnings of $0.80 per share, well above the consensus estimate of $0.43 per share.

American Airlines’ improved performance reflects broader changes in travel patterns that have reshaped the airline industry. Summer used to be the most profitable period for airlines, but that is changing as people prefer to travel in the fall or winter, when popular destinations are less crowded.

In 2025, the airline industry has struggled with an oversupply of domestic flights, which has affected results. In recent months, airlines have struggled with tepid customer demand as economic uncertainty and changing tariff policies made travelers cautious about spending. Airlines responded by scaling back growth plans and cutting capacity to avoid flying unprofitable routes.

In the fourth quarter, American Airlines aims to increase its capacity by 4% year over year (YoY). This measured approach indicates a focus on profitability over aggressive expansion. The airline reported a net loss of $114 million in the third quarter, with revenue increasing just 0.3% compared to a year earlier.

While still in the red, the results showed a sequential improvement from earlier in the year, when demand was weaker. The company’s ability to exceed expectations and improve its outlook suggests that operational adjustments are starting to bear fruit as the year draws to a close.

Analysts who follow AAL stock forecast that adjusted earnings will rise from $0.77 per share in 2025 to $3.26 per share in 2028. If the airline is priced at 7.5 times forward earnings, which is in line with its three-year average, AAL stock could double over the next two years.

Of the 18 analysts covering American Airlines stock, nine recommend a “Strong Buy,” eight recommend a “Hold,” and one recommend a “Strong Sell.” The average price target for AAL stock is $15.56, which is above the current price of $12.54.

On the date of publication, Aditya Raghunath had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com