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American Airlines vs. United: Which Airline Stock Is a Better Investment?

Airlines stocks could be poised to make a comeback in the next 12-months, especially if the pandemic is brought under control. Which is why today I’m going to take a look at American Airlines (AAL) and United Airlines (UAL) to see which is the better investment.

The airline sector was among the worst hit amid the COVID-19 pandemic.  Traveling ground to a halt and airline companies burnt billions of dollars in cash to stay afloat.  

Since the onset of the coronavirus, most airline stocks have modestly rebounded from their Spring 2020 lows but the U.S. Global Jets ETF (JETS) is still trading down more than 23% from it’s pre-covid level.  This could be an opportune time to take advantage of these cheaper prices, as economies around the world continue to reopen.  

Which is why today I’m going to analyze two stocks in the airline industry, American Airlines (AAL) and United Airlines (UAL), to see which is currently a better buy.  

American Airlines disappointed investors in Q2

In June this year, American Airlines claimed that its load factors and bookings were experiencing a surge. The load factor is the percentage of seats occupied by paying customers. However, its Q2 sales were still forecast to decline by almost 40% compared to the same period in 2019. 

American Airlines later forecast that revenue decline in the June quarter of 2021 would be lower than expected at 37.5% compared to Q2 of 2019. Its capacity was also forecast to fall by 24.6% in the same period.

American Airlines reported a sequential growth of 87% in sales as it ended Q2 with revenue of $7.5 billion. In Q2 of 2019, its sales were $12 billion. The company’s pre-tax profit was positive

due to a $1.4 billion grant by the federal government.

In Q3 it expects a revenue decline of 20% compared to 2019 as capacity might reduce between 15% and 20%. This suggests the nonfuel unit costs for American Airlines will rise between 8% and 12%. 

Comparatively, the management has projected non-operating costs to increase from $251 million to $385 million due to its debt load. This will expectedly impact the bottom-line as its adjusted pre-tax margin will trend between -7% and -3%.

American Airlines ended Q2 with $17.95 billion in cash and $48.3 billion in debt. Analysts also expect the company to report an adjusted loss of $7.62 per share in 2021.

United Airlines reported better than expected results in Q2

In April 2021, United Airlines expected sales of $5 billion in Q2 with an adjusted EBITDA loss of $1 billion and a pre-tax loss of $2 billion. Less than two months later, it increased sales forecasts to $5.47 billion and narrowed EBITDA losses to $595 million. A faster-than-expected recovery in international flights and business-related travel also allowed the company to report a positive EBITDA of $212 million in the last month of Q2.

It finally reported revenue of $5.47 billion in Q2 with an adjusted loss of $1.6 billion in the quarter. After accounting for the federal benefit of $1.1 billion, United Airlines’ loss narrowed to $564 million. United Airlines’ cash balance stood at $21.07 billion while its debt balance is $41.76 billion.

The verdict

United Airlines and American Airlines are both experiencing a recovery in top-line and profit margins this year. But I believe United Airlines is currently the better investment due to its improved liquidity position and lower debt levels. Further, United Airlines also expected to report an adjusted profit in Q3 and Q4 of 2021, something American Airlines might struggle to achieve.


AAL shares rose $0.03 (+0.14%) in after-hours trading Thursday. Year-to-date, AAL has gained 32.53%, versus a 19.69% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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