Delta Air Lines (NYSE:DAL) and American Airlines Group (NASDAQ:AAL) have been leaders of the recent airline industry renaissance. Both companies have posted record earnings throughout 2014. Not surprisingly, these two stocks have delivered huge gains this year.

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Delta vs. American YTD Stock Chart, data by YCharts.

Delta and American have achieved this great success despite adopting somewhat different strategies. However, in the long run, their differing approaches could lead to a divergence in performance.

Comparing financial performance
Through the first nine months of 2014, Delta has a slight edge over American Airlines in terms of financial performance. Delta's year-to-date adjusted pre-tax income is $3.5 billion, compared to $3.1 billion for American.

Revenue growth has been similar for both airlines. Year to date, Delta's revenue is up 7%, while American's revenue spiked by 6.7%. Delta Air Lines has a bigger lead in terms of margins, with an 11.5% adjusted pre-tax margin against American Airlines' 9.5%.

The biggest differentiator between Delta and American is free cash flow. Delta has generated $2.8 billion of free cash flow year to date, and is on track to end the year with free cash flow of nearly $3.5 billion. By contrast, American's free cash flow is negative for the year, due to heavy investments in new airplanes.

Delta is the conservative choice
Delta's lean capital spending makes it a solid stock for relatively conservative investors. By stretching the useful lives of its airplanes and scouring the used aircraft market for bargains, Delta has consistently generated strong free cash flow in recent years.

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Delta Air Lines often buys used aircraft to keep capital spending in check. Photo: The Motley Fool.

This strategy benefits investors in a few ways. First, Delta has reduced its adjusted net debt from $17 billion at the end of 2009 to just $7.4 billion today. This has directly reduced its interest expense. The airline has also received multiple credit rating upgrades recently, which will help it secure lower interest rates when it issues debt in the future.

Second, by reducing fixed costs through the use of older airplanes, Delta can react quickly to changes in the demand environment. For example, Delta is accelerating the retirement of its aging Boeing 747s after overcapacity on trans-Atlantic routes put pressure on its unit revenue. It could not have done that so easily if all of its planes were relatively young.

Third, Delta's strong free cash flow enables it to ramp up returns of capital to investors. In the first three quarters of 2014, Delta returned $776 million to shareholders through dividends and stock buybacks.

Delta's strategy is great for more conservative investors. Building a rock-solid balance sheet ensures the company can survive whatever challenges the volatile airline business might bring in the future. Meanwhile, it can reward investors with dividends and stock buybacks as long as industry conditions remain favorable.

American Airlines: the more aggressive choice
Like Delta, American Airlines has an aging fleet. Unlike Delta, American decided a few years ago to aggressively replace its older aircraft with new planes.

In 2011, American ordered 460 Boeing and Airbus narrow-body plans for delivery between 2013 and 2022. For international routes, it is receiving 20 Boeing 777-300ERs, the largest twin-engine planes flying today. American Airlines will also receive the first of 42 Boeing 787s later this year, while it has 22 Airbus A350s scheduled for delivery beginning in 2017.

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American Airlines is investing heavily in new, fuel-efficient airplanes. Photo: American Airlines.

Buying all of these new airplanes is expensive. American's aircraft purchase commitments total more than $30 billion, including about $16 billion over the next four years. Including nonaircraft capital expenditures, American's capital budget is likely to average at least $5 billion annually through the end of the decade.

As a result, American Airlines won't be able to generate nearly as much free cash flow as Delta Air Lines in the next five to 10 years, and it won't reduce its debt burden much. That said, American is rapidly updating its fleet while still running a little better than breakeven on a cash basis.

This is important because the new jets American is adding will significantly reduce its fuel and maintenance costs. As newer, cheaper-to-operate jets become a larger proportion of its fleet, American Airlines could develop a significant unit cost advantage over Delta.

Thus, more aggressive investors might prefer investing in American Airlines. American is not as well positioned as Delta in the event of a big downturn in global aviation demand, but it could have more profit upside as long as demand remains solid. A decade from now, when American's fleet modernization is complete, the company might have even more cash flow to return to investors than Delta.

Today, Delta edges out American Airlines when it comes to superior financial performance. That doesn't necessarily make it the better investment, though. That depends on your personal risk tolerance.

For conservative investors, Delta could be a good choice because of its solid balance sheet, strong free cash flow, and shareholder-friendly capital allocation policy. However, more risk-tolerant investors might prefer American Airlines. Its big investment in new planes today could pave the way for higher long-term earnings.

Adam Levine-Weinberg owns shares of Boeing. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.