Motivated by recent experimental and computational results that show a motility-induced clustering transition in self-propelled particle systems, we study an individual model and its corresponding Self-Organized Hydrodynamic model for collective behaviour that incorporates a density-dependent velocity, as well as inter-particle alignment. The modal analysis of the hydrodynamic model elucidates the relationship between the stability of the equilibria and the changing velocity, and the formation of clusters. We find, in agreement with earlier results for non-aligning particles, that the key criterion for stability is $(rho v(rho))> 0$, i.e. a non-rapid decrease of velocity with density. Numerical simulation for both the individual and hydrodynamic models with a velocity function inspired by experiment demonstrates the validity of the theoretical results.
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