Our $18.25 target price is driven by applying a ~10x target multiple to 2025E EPS. This level represents a ca. 5% discount to Citi's target valuation for rival Delta Air Lines.  Among other factors, this discount considers Delta's stronger balance sheet and FCF profile, as well as the view that American Airlines could see very strong earnings momentum over the next two years.

Key risks to achieving our target price faced by American Airlines include: (A) Jet fuel prices: Sudden, unexpected jumps in fuel prices can be difficult to counteract.  Fuel prices that are too low could signal economic weakness; (B)  economic: demand for airline travel is likely to decline in the event of a macroeconomic slowdown; (C)  Labor challenges: any disagreements between the carrier's labor unions and management could have a material impact on the company's network efficiency and could produce customer service problems -- and labor could remain hard to find; and (D) supply challenges: it could remain difficult to procure aircraft, engines, spare parts and the like. Positive or adverse developments in these risk factors could cause the share price to remain above or fall below our target price. 

Upside risks to our target price include labor negotiations going better than we expect, as well as a capex roll-off that could occur more quickly than anticipated.