The airline industry has made dramatic advances in the past five years, with a combination of a better economy, lower fuel costs, and consolidation among major players in the sector contributing to the advances in airline stocks. In particular, Delta Air Lines (NYSE:DAL) has led the charge forward among major carriers, but up-and-coming airlines like Spirit Airlines (NYSE:SAVE) have made their mark with discounted base fares and ancillary charges for just about every aspect of flying. With the advance in airline stocks having stalled out in the past few months, investors want to know which airline is the best place for their money over the long haul. Let's compare Delta Air Lines and Spirit Airlines on several key metrics to see which looks more attractive currently.

Valuation and stock performance

Delta and Spirit have both seen good gains over the past 12 months, but Spirit has a slight edge. The discount airlines has had its stock rise 23% since May 2016, compared with a 14% advance for Delta over the same time frame.

From a valuation perspective, both stocks look like good values at current levels, but Delta has a more attractive multiple to its earnings. Based on trailing earnings, Delta stock trades at just 9 times its bottom line over the past 12 months, compared to a trailing earnings multiple of 16 for Spirit. Even when you incorporate Spirit's faster growth projections, its forward multiple of 11 is still less than the roughly 8 to 9 times forward earnings Delta currently fetches. In terms of valuation, Delta has an edge over Spirit, which is consistent with the two companies' relative sizes.

The side of a Delta plane, with a dark sky in the background.

Image source: Delta Air Lines.


When it comes to dividends, only one of these airlines delivers the goods. As you'd expect from a small company in full-growth mode, Spirit doesn't pay a dividend. Delta, however, does, with a current yield of 1.6%.

That said, Delta was slow in becoming friendlier from a dividend perspective. That's in part due to its history, which included a bankruptcy proceeding a decade ago. The company has aggressively moved forward with expansion, merging with Northwest Airlines and working to hold its own against growing competition and greater consolidation activity throughout the industry. It took until 2013 for Delta to declare a dividend, but since then, the company has made sharp increases of 50% in 2014, 2015, and 2016 to bring the payout to its current level.

In time, Spirit might generate enough growth to start returning capital to shareholders through dividends. For now, though, Delta gets the vote from dividend investors.

Growth and risk profile

In an industry in which customer demand is strong, both Delta and Spirit have opportunities for growth. Recently, though, Delta has faced some challenges. In April, a major weather event in Atlanta led to cancellations of thousands of flights, causing costly disruptions in service that took several days to return to normal. Such events raise frustration levels among passengers, and other airlines have seen even more challenging circumstances that have raised concerns about increased regulation of major carriers going forward. However, Delta is still benefiting from the fact that oil prices have stalled out near the $50-per-barrel mark, making it less costly for the airline to operate its fleet. Given the relative lack of competition among top-service carriers, Delta is in a solid position and should be able to stay successful as long as general economic conditions remain favorable.

For Spirit, growth has come with growing pains. In its most recent quarter, Spirit reported another year-over-year decline in quarterly profit. Yet investors are increasingly optimistic about Spirit's future prospects, because the trend for the airline's cost structure is looking more favorable. A labor dispute with pilots turned contentious earlier in May, and that caused cancellations to rise precipitously and led to concerns about long-term relations with its workers. Spirit's business model is different from that of Delta and many other airlines in the business, and both passengers and workers will have to deal with the implications in order to take advantage of the opportunities that Spirit brings to the table.

At this point, picking Delta or Spirit depends on what you're looking for as an investor. For those who prefer stable plays on the overall airline industry's future, Delta is the more appropriate pick, and its dividend and lower valuation offer margins of safety. For growth investors, Spirit is a higher-risk play on a transformation in the airline sector going forward, and if it's successful, the gains for the smaller airline could be much greater than a giant like Delta will see.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.