Pick Either American Airlines Stock Or Its Peer – Both May Offer Similar Returns

AAL: American Airlines logo
American Airlines

We believe that American Airlines stock  (NASDAQ: AAL) and its peer Delta Air Lines stock (NYSE: DAL) will likely offer similar returns in the next three years. American Airlines is trading at 0.2x trailing revenues compared to 0.4x for Delta Airlines. Investors have assigned a higher multiple to Delta due to its superior revenue growth, as discussed below. If we look at stock returns, Delta Airlines, with -16% returns in the last twelve months, has fared marginally better than American Airlines, down 19%, and both have underperformed the broader S&P 500 index, down 13%. There is more to the comparison, and in the sections below, we discuss the possible returns for AAL and DAL. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of American Airlines vs. Delta Air LinesWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Delta Air Lines’ Revenue Growth Is Better

  • Both companies posted strong sales growth over the last twelve months. Still, Delta’s revenue growth of 69% is slightly higher than 64% for American Airlines.
  • Even if we look at a longer time frame, Delta fares better, with its sales falling from $47 billion in 2019 to $17 billion in 2020 before rebounding to $51 billion in 2022. American Airlines saw its sales plunge to $17 billion in 2020, compared to $46 billion in 2019, and it surged to $49 billion in 2022.
  • The rise in revenues for both airlines over the recent years can be attributed to a rebound in air travel demand, with passenger traffic and ticket yield rising meaningfully in the last few years.
  • For perspective, American Airlines’ revenue passenger miles (RPM) surged 2.3x between 2020 and 2022, while passenger revenue per available seat mile (PRASM) rose 69%. In comparison, Delta’s RPM increased 2.7x, and PRASM grew 80% over the same period.
  • The demand for air travel is expected to remain high in the near term, boding well for both American Airlines and Delta Air Lines.
  • Our American Airlines Revenue Comparison and Delta Air Lines Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Delta’s revenue is expected to grow faster than American Airlines in the next three years.

2. American Airlines Is More Profitable 

  • American Airlines’ operating margin of 7% over the last twelve months is better than 4% for Delta. However, the latter’s operating margin has been superior pre-pandemic.
  • American Airlines’ operating margin stood at 9.1% in 2019, before the pandemic, and it fell to -53% in 2020, before recovering to 7.3% in 2022. In comparison, Delta’s operating margin was 13.2% in 2019, -91 in 2020, and 4.0% in 2022.
  • Delta’s free cash flow margin of 12.6% is also higher than the 4.4% for American Airlines.
  • Our American Airlines Operating Income Comparison and Delta Air Lines Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. American Airlines’ 393% debt as a percentage of equity is much higher than 117% for Delta, and its 14% cash as a percentage of assets is higher than 9% for the latter, implying that Delta has a better debt position, and American Airlines has more cash cushion.
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3. The Net of It All

  • We see that American Airlines is more profitable, has more cash cushion, and is trading at a comparatively lower valuation multiple. On the other hand, Delta has seen superior revenue growth and has a better debt position.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both American Airlines and Delta will likely offer similar returns over the next three years.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 18% for American Airlines over this period vs. a 13% expected return for Delta stock, implying that investors can pick either of the two airlines for similar returns, based on Trefis Machine Learning analysis – American Airlines vs. Delta Air Lines – which also provides more details on how we arrive at these numbers.

While AAL and DAL may offer similar returns in the next three years, it is helpful to see how American Airlines’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for FedEx vs. Amkor.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Mar 2023
MTD [1]
YTD [1]
Total [2]
AAL Return -13% 10% -70%
DAL Return -16% -2% -35%
S&P 500 Return 0% 4% 78%
Trefis Multi-Strategy Portfolio -3% 4% 228%

[1] Month-to-date and year-to-date as of 3/28/2023
[2] Cumulative total returns since the end of 2016

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