Memorandum

To: Doug Parker, CEO

From: Alycia Pishtey, Junior Analyst
Date: December 8, 2014
Subject: Delta Airlines financially stronger than American Airlines
________________________________________________________________________
The financial records of American Airlines Group Inc. (AAL) compared to its largest
competitor, Delta Airlines, Inc. (DAL), conclude that American Airlines is financially
weaker than Delta Airlines. Delta Airlines is a relevant, top competitor of American
Airlines because of its similar services and market. Both companies provide international
air travel with hundreds of destinations. While American Airlines stock prices are similar
but slightly higher than those of Delta Airlines, the revenue, net income, and earnings per
share of Delta Airlines is much higher. American Airlines must increase net income,
sales/revenue, and earnings per share to solidify its spot as the number one company for
international air travel.
Stock Prices of AAL slightly greater than DAL:
The stock prices of both American Airlines and Delta Airlines have increased over the
past year, although the current stock price of American Airlines is greater than Delta
Airlines. As seen in Figure 1, one year ago the stock price of American Airlines was
$23.04. Prices then increased to $41.22 six months ago and increased to $51.01 intraday.
(Yahoo Finance, 2014) The stock prices of Delta Airlines were very close to those of
American Airlines. One year ago, the companys stock cost $29.00. Prices increased to
$40.77 six months ago and then increased to $47.28 intraday. (Yahoo Finance, 2014) As
you can see in Figure 1, stock prices were almost equal six months ago, but American
Airlines was able to surpass Delta Airlines intraday. Investors will be more attracted to
American Airlines because of the higher value placed on the company, but Delta Airlines
poses a threat as their stock price is also continuing to increase. Next, the revenue of
American Airlines is compared to Delta Airlines over the past three years.
Figure 1.

$60.00
$50.00
$40.00
AAL

$30.00

DAL

$20.00
$10.00
$0.00
1 Year

6 Months

Intra Day

(Yahoo Finance, 2014)

Revenue Over the Past 3 Years (2011-2013): DAL is higher than AAL
When compared with Delta Airlines, American Airlines has had lower sales dollars in the
past three years, which is shown in Figure 2. American Airlines experienced an increase
in sales from $23.9 billion in 2011 to about $24.8 billion in 2013, to $26.7 billion in
2013. (Annual Income Statement, 2013) The increase in sales for the company
demonstrates that American Airlines is moving in the right direction to continue growth.
Unfortunately, Delta Airlines revenue is larger than the sales recorded by American
Airlines and is also continuing to grow. The revenue for Delta Airlines was $35.2 billion
in 2011. It then increased to $36.7 billion in 2012 and $37.7 billion in 2013. (Delta
Airlines Inc., 2014) This higher revenue is a threat to American Airlines. This threat is
also shown in the net income for both companies, as Delta Airlines drastically surpasses
American Airlines.
Figure 2.
40,000
35,000
30,000
25,000
AAL

20,000

DAL

15,000
10,000
5,000
0
2011.0

2012.0

2013.0

(Annual Income Statement, 2013), (Delta Airlines Inc., 2014)

Net Income Over the Past Three Years (2011-2013): DAL surpasses AAL
The recorded net incomes of American Airlines over the last three full years show that the
company has been losing money. The net income of American Airlines in 2011 is
negative $1.9 billion. The net incomes for 2012 and 2013 are both still negative, but they
did slightly increase; they had a net income of negative $1.88 billion in 2012 and
negative $1.83 billion in 2013. (Yahoo Finance, 2014) The negative net incomes for
American Airlines will turn away future investors and are negatively affecting current
investors. The net incomes of Delta Airlines from 2011 to 2013 are drastically higher than
those of American Airlines. In 2011, the companys net income was $854 million. It then
increased to $1 billion in 2012 and $10.5 billion in 2013. (Yahoo Finance, 2014) The
significant increase and higher numbers in net income for Delta Airlines pose a threat to
American Airlines and may turn away investors. Lastly, the price earnings ratio and
earnings per share demonstrates the need for American Airlines to increase their earnings
per share in order to catch up with Delta Airlines.
Figure 3.
Net Income (in
thousands)
AAL
DAL

2011

2012

2013

($1,979,000)
($1,876,000)
$854,000
$1,009,000
(Yahoo Finance, 2014)

($1,834,000)
$10,540,000

Price Earnings Ratio and Earnings Per Share: AAL needs to increase EPS
The very high price earnings ratio for American Airlines, which is 99.63, suggests that
this company will be expecting high earnings growth in the future. (Yahoo Finance,
2014) But, the low earnings per share amount determines that the company has a very
low share price. The earnings per share for American Airlines is currently $0.51. This low
number is not appealing to investors. The price earnings ratio of Delta Airlines, 4.09, is
much lower than that of American Airlines. (Yahoo Finance, 2014) But, the companys
earnings per share is at a much higher dollar value than that of American Airlines. The
earnings per share of Delta Airlines is $11.57. (Yahoo Finance, 2014) This information
indicates that although American Airlines foresees higher earnings in the future, Delta
Airlines currently has a much higher share price in the industry, making it stronger than
American Airlines.
Figure 4.

AAL
DAL

P/E Ratio
99.63
4.09
(Yahoo Finance, 2014)

EPS
0.51
11.57

References
AAL Income Statement. | American Airlines Group, Inc. - Yahoo! Finance. (n.d.).
Retrieved December 8, 2014, from http://finance.yahoo.com/q/is?s=AAL Income
Statement&annual
Annual Income Statement. (n.d.). Retrieved December 8, 2014, from
http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-fundincomea
DAL Income Statement | Delta Air Lines, Inc. Common St Stock - Yahoo! Finance.
(n.d.). Retrieved December 8, 2014, from http://finance.yahoo.com/q/is?
s=DAL&annual
Delta Air Lines Inc. (n.d.). Retrieved December 8, 2014, from
http://www.marketwatch.com/investing/stock/dal/financials