In the past two years, United Continental (NASDAQ:UAL) has made a remarkable comeback, regaining market share and improving its profitability.

United continued on that strong trajectory last quarter, posting impressive margin expansion. This enabled it to more than double its adjusted earnings per share compared to Q1 2018, sailing past analysts' estimates. That said, United Airlines' first-quarter results and second-quarter outlook show that unit revenue growth is slowing, particularly in comparison to top rival Delta Air Lines (NYSE:DAL).

Another solid quarter

Just last year, United Airlines was still struggling to turn a profit in the first quarter, traditionally the weakest part of the year for most airlines. The carrier's adjusted pre-tax margin came in at just 2% in Q1 2018. However, United's initial outlook for the first quarter of 2019 called for its adjusted pre-tax margin to rise to a range of 2.5% to 4.5%.

On Tuesday afternoon, the company reported a 4.1% adjusted pre-tax margin for the quarter, nearly reaching the high end of that guidance. Revenue rose 6.2%, compared to a 5.9% uptick in capacity, implying a slight increase in revenue per available seat mile (RASM). Most of United's margin expansion was driven by lower unit costs, as the airline's average fuel price declined slightly and its adjusted nonfuel unit costs fell 1.8% year over year.

United Continental continued to shrink its share count at a furious pace last quarter, buying back $527 million of stock. That contributed to the company's rapid EPS growth. Indeed, adjusted EPS more than doubled to $1.15 from $0.49 a year earlier. On average, analysts had been expecting adjusted EPS of just $0.94.

A United Airlines jet on a runway

United Continental's adjusted EPS more than doubled last quarter. Image source: United Airlines.

In its earnings release, United said its 2.1 percentage points of pre-tax margin expansion last quarter will likely be the best among its peer group. That may be true. Still, Delta Air Lines' adjusted pre-tax margin came in at 8% last quarter: nearly twice as high as United's.

The second quarter looks similar

The investor update published by United Airlines on Tuesday suggests that it expects its recent revenue and margin trends to continue this quarter. United projects that passenger unit revenue will rise 0.5% to 2.5%, while cargo and other revenue will be roughly in line with last year's total of $897 million, despite capacity growth of 3.5% to 4.5%. This forecast implies that RASM will rise roughly 0% to 2% year over year.

Meanwhile, United Airlines expects adjusted nonfuel unit costs to rise 0% to 1% and another modest year-over-year decrease in fuel prices. As a result, its pre-tax margin should improve to a range of 11% to 13%, compared to 10.4% a year ago.

United's guidance implies that it will creep closer to Delta Air Lines in terms of profitability once again without coming close to matching the latter's performance. Last week, Delta said its adjusted pre-tax margin will likely come in between 14% and 16% this quarter, up from 13.9% in the second quarter of 2018. Furthermore, Delta's guidance calls for a 1.5% to 3.5% RASM gain this quarter, solidly ahead of what United Airlines expects.

There's still a clear choice for investors

United Continental has been one of the best-performing airline stocks since late 2017, posting much bigger gains than Delta Air Lines. Investors have flocked to United stock because of the company's low valuation and strong earnings growth.

Even after its recent rally, United Continental stock trades for just eight times the company's projected 2019 EPS. Delta Air Lines shares are slightly pricier, at nearly nine times projected 2019 EPS. However, Delta deserves to trade at an even bigger premium over its rival.

United Continental's lower profitability means it produces less operating cash flow than Delta, but it's actually spending more on capex. Based on both companies' current capex commitments, that will continue to be the case for at least two more years. Thus, while Delta expects to generate up to $4 billion of free cash flow this year, United's free cash flow is likely to be quite a bit lower. On top of that, it has more debt than Delta Air Lines.

With Delta Air Lines pulling ahead of United Airlines in terms of unit revenue growth, it looks as unlikely as ever that United will ever match Delta's profitability. Considering that Delta Air Lines has stronger free cash flow and a better balance sheet, it is well worth a small premium over United Continental stock.