United Airlines Vs. Southwest Airlines: Which Stock Offers More Upside?

United Airlines Holdings Inc UAL and Southwest Airlines Co LUV are among the top four airlines in the U.S.

While United Airlines is reporting fourth-quarter (Q4) earnings on Jan. 22, Southwest is reporting on Jan. 25. The two companies compare well in terms of scale and market performance.

Related: United Airlines Gears Up For Q4 Earnings – Investors Brace For Possible Turbulence

Let’s take a quick look at how these companies compare. Operating in the same industry, the two companies’ stocks appear highly correlated (chart below) (Coefficient of determination (R²) = 0.78). However, their businesses differ in their approaches.

Operational Differences: Fleet, Route, Service, Costs, Reach

United Airlines and Southwest Airlines differ significantly in their operational approaches.

United, with a diverse fleet, serves a global market, offering long-haul international flights. In contrast, Southwest maintains a streamlined fleet of Boeing 737s, focusing on domestic point-to-point service. United’s extensive route network spans both domestic and international destinations, catering to a diverse clientele, while Southwest primarily concentrates on short-haul domestic flights.

Customer service reflects this divergence, with United providing a premium experience across various cabin classes and Southwest offering a no-frills, single-class cabin approach, emphasizing affordability.

Financially, United faces challenges as a legacy carrier, while Southwest’s historically low-cost model contributes to financial stability.

Looking ahead, United may focus on expanding international reach and technological advancements, while Southwest is likely to optimize domestic operations and maintain cost efficiency. These distinctions underline their unique market positions and strategies within the ever-evolving airline industry.

Financial Differences

United is a $12.8 billion company, Southwest sports a market cap of $17.9 billion. Their stocks are also down by 19.65% and 17.80% over the past year, respectively.

While United generated $2.86 billion in net income on $52.49 billion in revenue on a TTM basis, Southwest was able to generate just $497 million in net income on $25.44 billion generated in revenues on a TTM basis. While United has more debt on its balance sheet, its covered ratio if 3.05 as compared to Southwest’s 1.34.

Valuation Differences

Chart compiled using Yahoo Finance data.

Looking at stock valuations, United Airlines appears to be better placed as per analyst consensus estimates, as compared to Southwest Airlines. While the former has the potential to offer a 60.33% upside, the latter comes with a potential 8.8% downside.

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