AAL WACC - Weighted Average Cost of Capital
The WACC of American Airlines Group Inc (AAL) is 7.8%.
| Range | Selected | |
| Cost of equity | 14.7% - 18.9% | 16.8% |
| Tax rate | 25.0% - 26.7% | 25.85% |
| Cost of debt | 5.4% - 9.1% | 7.25% |
| WACC | 6.3% - 9.2% | 7.8% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 2.36 | 2.51 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 14.7% | 18.9% |
| Tax rate | 25.0% | 26.7% |
| Debt/Equity ratio | 3.78 | 3.78 |
| Cost of debt | 5.4% | 9.1% |
| After-tax WACC | 6.3% | 9.2% |
| Selected WACC | 7.8% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| AAL | American Airlines Group Inc | 3.78 | 1.03 | 0.27 |
| AC.TO | Air Canada | 1.73 | 1.23 | 0.54 |
| ALK | Alaska Air Group Inc | 0.78 | 0.83 | 0.53 |
| DAL | Delta Air Lines Inc | 0.44 | 1.26 | 0.95 |
| HA | Hawaiian Holdings Inc | 1.76 | 1.81 | 0.79 |
| LUV | Southwest Airlines Co | 0.32 | 1.18 | 0.96 |
| SKYW | SkyWest Inc | 0.59 | 1.16 | 0.81 |
| UAL | United Airlines Holdings Inc | 0.87 | 1.44 | 0.88 |
| ULCC | Frontier Group Holdings Inc | 0.53 | 1.94 | 1.39 |
| IAG.L | International Consolidated Airlines Group SA | 0.93 | 1.43 | 0.85 |
| Low | High | |
| Unlevered beta | 0.8 | 0.86 |
| Relevered beta | 3.03 | 3.25 |
| Adjusted relevered beta | 2.36 | 2.51 |
AAL's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for AAL:
cost_of_equity (16.80%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (2.36) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.