Few inventions have changed how people live and experience the world as much as the airplane. It has altered the way in which people live, travel, and conduct business by cutting travel time and making any place reachable.
That being said, Delta Air Lines (DAL) and American Airlines (AAL) are two of the power houses of the U.S. airline industry and if are looking to get in on the industry from an investment perspective, you may want to consider these companies in your portfolio.
We will analyze both companies using statistics ranging from customer service to key air industry statistics and financial data. Delta Airlines is currently trading at $39.42, up about 41.84% YTD and American Airlines is currently trading at $38.29, up about 51.70% YTD.
Customer Service
- DOT (Department of Transportation ) all reportable airports 3. DOT. Per 1K passengers
- DOT (Department of Transportation ) all reportable airports 4. DOT. Per 1MM passengers
5. 2014 American Customer Satisfaction Index Scores
Looking at the customer service numbers, we can deduce that Delta has a better service for customers than American Airlines. These statistics are significant because at the heart of the airline industry, it is a service and when holding all things equal, the airline with better customer service will be the better company.
Since we cannot hold all things equal in stock picking, these numbers should be in the back of your mind when thinking of which airline stock to add to your portfolio, as a better customer experience can definitely help a company’s long term performance.
Key Airline Industry Ratios/Terms
SOURCE: Bureau of Transportation Statistics T-100 Segment data.
The above graphs help explain the popularity of each airline and how loyal customers are to each airline. Total # of passengers per year typically gauge how popular an airline is and indicates if the company is generally doing well or poorly.
As you can see from the past decade, American Airlines totaled more passengers and flights per year since early 2000, but Delta eventually took over in both categories in 09’ when it jumped tremendously. As we can see from the load factor, both companies seem to be consistently growing and currently hovering around the 80% mark. This measures the capacity utilization and efficiency of an airline to fill sears and generate fare revenue.
Available Seat Miles measures an airplanes capacity available to generate revenue. ASM basically measures an airlines revenue-generating abilities based upon traffic. This metric is very important for investors because it indicates which airlines is best at generating revenue from the availability of seats to customers.
As you can see, American Airlines is the winner at the beginning of ’02, but eventually gets overrun by Delta beginning in 09’. This could be explained by the merger of Delta Airlines and Northwestern Airlines which resulted in the largest commercial airline in the world (at the time) with 786 aircraft and $17.7 billion in enterprise value.
Revenue Passenger Mile (RPM) is an important metric that shows the number of miles traveled by paying passengers. RPM’s are the backbone of most transportation metrics because it accounts for both number of paying passengers and miles flown. Again, we see a similar story after 09’ where Delta presumes to take over American Airlines in RPM’s which could be attributed to the merger with Northwestern Airlines.
Key Financial Statistics
Valuation
From the above valuation statistics, we can deduce that while Delta is the bigger company in terms of market capitalization, both companies seem to be not overvalued. Growth is better accounted for in Delta than in American which could give investors bigger gains in the future given American has positive investment news.
Profitability
According to the data above, the most noticeable metrics are American Airlines negative profit margin and negative Net income to Common Shareholders. Both companies have similar gross profit per year hovering around $15 million, but the significant difference comes from operational cost management where American Airlines Gross Profit gets significantly subtracted relative to Delta Airlines.
One potential reason could be from Income Tax Expense where Delta and American generate a net value of $8.01bil and -$346 million, respectively. Both Airlines generate similar revenue and American Airlines comes out on top generating higher revenue per share giving some positive signs for their shareholders. Although American Airlines has about 4.5x higher Debt/Equity than Delta Airlines which indicates that costs could potentially hinder their growth for gross profit and revenue for the coming years.
Bottom Line
When analyzing these companies from an investor standpoint, it would be arguably difficult to say that American Airlines is the better stock to have in your portfolio. Yes, American Airlines is a little more experienced in being publicly traded and both companies have a similar rate of return on their common stock since going public.
According to the customer service data, Airline key ratios, and financial data, Delta Airlines as of now seems to be the stock to be investigating more to potentially have in your portfolio. We currently have both companies as a Zacks Rank #3 (hold) due to mixed consensus on earnings estimate revisions for the next year. Delta and American has had a positive average earnings surprise of 5.79 % and 62.23% respectively.
Investors should be watching to see how Delta will maintain their growth that they have incurred after their merger with Northwestern Airlines. Also, investors should carefully watch how American Airlines will control their operational costs and generate a positive net income for their shareholders. These massive Airlines are big players in the airline industry and you should research how these companies will capitalize in the upcoming holiday season.
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Read the analyst report on DAL
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- Professional Services
- Airline Industry
- American Airlines
- Delta Air Lines
