Delta Air Lines DAL and Southwest Airlines LUV are two well-known names in the Zacks Transportation- Airline industry, accounting for a significant market share in the U.S. airline space.
Delta, based in Atlanta, GA, is a founding member of the SkyTeam alliance. It is known for its extensive domestic and international network. DAL and its alliance partners collectively serve over 120 countries and territories, with more than 800 destinations served globally.
On the other hand, Southwest Airlines is based in Dallas. Through its vast network, LUV served 117 destinations in 42 states, the District of Columbia, the Commonwealth of Puerto Rico, apart from countries like Mexico, Jamaica, the Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos at 2024-end.
Given this backdrop, let’s see which airline heavyweight currently holds the edge, and more importantly, which might be the smarter investment now.
The Case for DAL
Due to the tariff-induced economic uncertainties and the resultant reduction in consumer and corporate confidence, DAL withdrew its full-year 2025 outlook while releasing its first-quarter 2025 results last month. To combat the weak demand scenario, DAL is reducing costs by trimming capacity.
Despite the tough conditions, the airline demonstrated resilience and beat the Zacks Consensus Estimate for earnings. This was the second earnings beat for the company in the last four quarters (having missed the mark in the other two quarters).
Delta Air Lines Price, Consensus and EPS Surprise
Delta Air Lines, Inc. Price, Consensus and EPS Surprise
Delta Air Lines price-consensus-eps-surprise-chart | Delta Air Lines Quote
The recent positive updates on the tariff front are highly welcome for airline stocks like DAL. Recently, the United States and China announced a 90-day deal to temporarily reduce their high reciprocal tariffs. With DAL having a global presence, this sign of easing trade tensions is a huge positive. Moreover, the southward movement of oil price bodes well for the bottom-line growth of Delta. This is because fuel expenses are a significant input cost for the aviation space.
Highlighting its shareholder-friendly stance, DAL’s management resumed paying quarterly dividends in 2023 of 10 cents per share after a COVID-induced hiatus. In June 2024, management announced a 50% hike in its quarterly dividend payout. This was the first dividend increase by DAL since the resumption of its quarterly dividend payments. DAL’s dividend yield is currently in excess of 1%. In this scenario of uncertainty, DAL’s dividend-paying capacity is a positive for income-seeking investors. This highlights confidence in its cash flow and prospects.
Delta Air Lines Dividend Yield (TTM)
Delta Air Lines, Inc. Dividend Yield (TTM)
Delta Air Lines dividend-yield-ttm | Delta Air Lines Quote
Delta’s liquidity position is encouraging. The airline ended first-quarter 2025 with cash and cash equivalents of $3.7 billion, higher than the current debt level of $2.9 billion. DAL's efforts to repay its debts are encouraging, too. The company’s times interest earned ratio of 7.7 compares favorably with the industrial levels.
Earnings Estimates for DAL
Zacks Investment Research
Image Source: Zacks Investment Research
The Case for LUV
Southwest Airlines incurred a loss in the first quarter of 2025, unlike Delta, due to high non-fuel costs. Cost per available seat mile, excluding fuel, oil, and profit-sharing expenses, and special items, grew 4.6% year over year. However, the loss was narrower than expected, resulting in the low-cost carrier delivering a positive earnings surprise for four successive quarters.
Southwest Airlines Price, Consensus and EPS Surprise
Southwest Airlines also did not reaffirm its guidance for earnings before interest and taxes for 2025 and 2026. Tariff woes apart, Southwest Airlines is facing a significant operational challenge pertaining to the demands of activist investor Elliott Investment Management, which has led to disruptions in its flight schedules and customer service. Elliot is looking for actions to improve the company’s profitability. Last year, LUV announced a resolution of its discussions with Elliott Investment Management by virtue of which six new directors were added to the company's board.
Highlighting the increasing influence of Elliott Investment Management, LUV recently decided to end its long-standing free baggage policy. Under the new policy (scheduled to take effect from May 28), Southwest Airlines has decided to charge some of its customers for checked bags. This marks an end to it being the only major U.S. carrier to allow customers to check two bags at no cost. Lackluster earnings results lately have increased pressure on LUV to revamp its business as it strives to raise its operating margin to at least 10% in 2027 from 2% in 2024. Like DAL, LUV also pays dividends, with the dividend yield being higher.
Moreover, fleet plans of Southwest Airlines have been hampered by the delivery delays, predominantly of the 737 MAX, due to production issues at Boeing BA. Southwest Airlines operates an all-Boeing 737 fleet. Following a series of safety-related incidents, the regulatory body has intensified its scrutiny of Boeing’s 737 MAX variants. For 2025, LUV expects to receive multiple Boeing 737 MAX jets. This will require substantial capex.
Earnings Estimates for LUV
Zacks Investment Research
Image Source: Zacks Investment Research
Conclusion
The tariff-induced uncertainty is hurting both LUV and DAL. A resolution of the problem, hints of which have been emanating lately, will serve both airlines well. Moreover, their dividend-paying capacity, even in such uncertain times, highlights their financial stability.
However, the problems due to the tussle with Elliott Investment Management place LUV at a disadvantage and lend more uncertainty to its growth prospects. Moreover, the Boeing-induced disruptions to its fleet growth plans are unique to LUV, as DAL currently does not operate any of the MAX variants of Boeing. LUV’s high capex requirement in this era of demand weakness is another concern.
On the basis of our analysis, DAL seems a better pick than LUV, despite both carrying a Zacks Rank #3 (Hold) currently.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
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