Head to Head Analysis: American Airlines Group (NASDAQ:AAL) versus Southwest Airlines (NYSE:LUV)

Southwest Airlines (NYSE:LUV) and American Airlines Group (NASDAQ:AAL) are both industrials companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, dividends, institutional ownership, valuation, risk, analyst recommendations and earnings.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Southwest Airlines and American Airlines Group, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Southwest Airlines	4	8	11	0	2.30
American Airlines Group	2	10	9	0	2.33

Southwest Airlines presently has a consensus target price of $48.20, indicating a potential upside of 9.74%. American Airlines Group has a consensus target price of $17.28, indicating a potential upside of 32.09%. Given American Airlines Group’s stronger consensus rating and higher possible upside, analysts clearly believe American Airlines Group is more favorable than Southwest Airlines.

Dividends

Southwest Airlines pays an annual dividend of $0.72 per share and has a dividend yield of 1.6%. American Airlines Group pays an annual dividend of $0.40 per share and has a dividend yield of 3.1%. Southwest Airlines pays out 34.6% of its earnings in the form of a dividend. American Airlines Group pays out -54.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. American Airlines Group is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Southwest Airlines and American Airlines Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Southwest Airlines	3.34%	18.05%	4.44%
American Airlines Group	-0.79%	-9.11%	-0.38%

Valuation and Earnings

This table compares Southwest Airlines and American Airlines Group”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Southwest Airlines	$31.55 billion	0.68	$441.00 million	$2.08	21.11
American Airlines Group	$60.98 billion	0.14	$111.00 million	($0.73)	-17.92

Southwest Airlines has higher earnings, but lower revenue than American Airlines Group. American Airlines Group is trading at a lower price-to-earnings ratio than Southwest Airlines, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

80.8% of Southwest Airlines shares are owned by institutional investors. Comparatively, 52.4% of American Airlines Group shares are owned by institutional investors. 0.9% of Southwest Airlines shares are owned by company insiders. Comparatively, 0.7% of American Airlines Group shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Volatility and Risk

Southwest Airlines has a beta of 1.16, meaning that its share price is 16% more volatile than the S&P 500. Comparatively, American Airlines Group has a beta of 1.37, meaning that its share price is 37% more volatile than the S&P 500.

Summary

Southwest Airlines beats American Airlines Group on 10 of the 16 factors compared between the two stocks.

About Southwest Airlines

Southwest Airlines Co. operates as a passenger airline company that provides scheduled air transportation services in the United States and near-international markets. As of December 31, 2023, the company operated a total fleet of 817 Boeing 737 aircraft; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as ten near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. It also provides inflight entertainment and connectivity services on Wi-Fi enabled aircraft; and Rapid Rewards loyalty program that enables program members to earn points for dollars spent on Southwest base fares. In addition, the company offers a suite of digital platforms to support customers’ travel needs, including websites and apps; and SWABIZ, an online booking tool. Further, it provides ancillary services, such as Southwest’s EarlyBird Check-In, upgraded boarding, and transportation of pets and unaccompanied minors. Southwest Airlines Co. was incorporated in 1967 and is headquartered in Dallas, Texas.

About American Airlines Group

American Airlines Group Inc., through its subsidiaries, operates as a network air carrier. The company provides scheduled air transportation services for passengers and cargo through its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C., as well as through partner gateways in London, Doha, Madrid, Seattle/Tacoma, Sydney, and Tokyo. It operates a mainline fleet of 965 aircraft. The company was formerly known as AMR Corporation and changed its name to American Airlines Group Inc. in December 2013. American Airlines Group Inc. was founded in 1926 and is headquartered in Fort Worth, Texas.