American Airlines Group Inc. (NASDAQ:AAL)

The period under review demonstrates significant fluctuations in economic profit. Initial profitability was followed by substantial losses, with a recovery trend emerging in the most recent year. Net operating profit after taxes (NOPAT) experienced considerable volatility, directly impacting economic profit calculations.

NOPAT Trend

In 2019, NOPAT stood at US$3,350 million. This figure declined dramatically to a loss of US$10,143 million in 2020, before partially recovering to a loss of US$736 million in 2021. Further improvement was seen in 2022, with NOPAT reaching US$2,040 million, and continued into 2023, reaching US$2,815 million. The 2020 result represents a significant downturn, while 2023 shows a return towards pre-pandemic levels of profitability.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating between 7.94% and 8.91%. A slight increase was observed from 8.47% in 2020 to 8.85% in 2022, followed by a further increase to 8.91% in 2023. These changes, while present, were less pronounced than the shifts in NOPAT.

Invested Capital

Invested capital decreased from US$35,495 million in 2019 to US$31,408 million in 2020, and continued to decline to US$29,074 million in 2021. A modest increase to US$30,859 million was noted in 2022, followed by a slight decrease to US$30,476 million in 2023. The overall trend indicates a reduction in the capital employed by the entity, although the decline appears to have stabilized in recent years.

Economic Profit

Economic profit mirrored the volatility of NOPAT. A positive economic profit of US$243 million was recorded in 2019. This was followed by a substantial loss of US$12,803 million in 2020, and a loss of US$3,044 million in 2021. The losses narrowed to US$690 million in 2022, and finally resulted in a modest positive economic profit of US$100 million in 2023. The recovery in 2023 suggests a potential turning point, but the level of economic profit remains significantly lower than that observed in 2019.

The correlation between NOPAT and economic profit is evident. The substantial decline in NOPAT in 2020 directly resulted in a significant economic loss. The subsequent recovery in NOPAT in 2022 and 2023 contributed to a reduction in economic losses, culminating in a small economic profit in 2023. The relatively stable cost of capital suggests that changes in NOPAT were the primary driver of the observed fluctuations in economic profit.

Net Income (Loss)

The net income experienced a substantial decline from a profit of 1,686 million USD in 2019 to a significant loss of 8,885 million USD in 2020. This negative trend continued with a loss of 1,993 million USD in 2021. However, the company showed a recovery trend starting in 2022, reporting a slight profit of 127 million USD, which further increased to 822 million USD in 2023. This indicates a recovery phase following the sharp downturn experienced in 2020 and 2021.

Net Operating Profit After Taxes (NOPAT)

The NOPAT followed a pattern similar to net income. It declined from 3,350 million USD in 2019 to a substantial loss of 10,143 million USD in 2020. Although the loss narrowed in 2021 to 736 million USD, the company returned to profitability in 2022 with 2,040 million USD and further increased profitability to 2,815 million USD in 2023. This improvement suggests enhanced operating efficiency and effective cost management efforts post-2021.

Overall Trends and Insights

Both profitability metrics highlight a severe impact on financial performance during 2020 and 2021, likely indicative of broad industry or economic challenges during that period. The subsequent years show a gradual but steady recovery in operational and net profitability. The profit levels in 2023, while improved compared to the losses in 2020 and 2021, have not yet returned to the high levels seen in 2019. This recovery trajectory suggests resilience and a positive outlook but indicates that full pre-crisis profitability has not been fully restored as of 2023.

Income Tax Provision (Benefit)

The income tax provision exhibited significant volatility over the five-year period. In 2019, it was a positive figure of $570 million, indicating tax expense for that year. However, in 2020, there was a notable shift to a substantial tax benefit of -$2,568 million, reflecting either tax credits, losses, or adjustments that reduced tax liabilities significantly. In 2021, the income tax provision remained negative at -$555 million, though the magnitude of the tax benefit decreased compared to 2020.

Beginning in 2022, the figure reverted to a positive income tax provision, indicating tax expense of $59 million, and then increased to $299 million in 2023. This trend suggests a recovery or return to profitability whereby the company is liable for taxes again after consecutive benefit years.

Cash Operating Taxes

Cash operating taxes increased steadily from $303 million in 2019 to $348 million in 2020, followed by further increases to $482 million in 2021 and peaking at $485 million in 2022. There was a slight decline to $450 million in 2023.

This pattern indicates that despite variations in reported income tax provision, cash taxes paid have generally risen over the period, suggesting ongoing tax obligations tied to operational profits or other taxable activities independent from accounting income tax expense or benefits. The slight decline in the final year could imply adjustments in taxable income, changes in tax planning, or other operational modifications affecting cash tax outflows.

The financial data reveals several important trends regarding debt, equity position, and invested capital over the five-year period.

Total Reported Debt & Leases

The total reported debt and leases show an overall increasing trend from 2019 through 2021, rising from $33.4 billion to $46.2 billion. This suggests significant additional borrowing or lease obligations during this time. However, in the subsequent years 2022 and 2023, the debt level decreased to $43.7 billion and then to $40.7 billion, respectively. This indicates a deleveraging phase following the peak in 2021, possibly reflecting efforts to reduce leverage or repayments of obligations.

Stockholders’ Deficit

The stockholders’ deficit worsened dramatically from a minor negative $118 million in 2019 to substantial deficits of approximately $6.9 billion and $7.3 billion in 2020 and 2021, respectively. After peaking in 2021, the deficit began a gradual improvement, declining to about $5.8 billion in 2022 and further to $5.2 billion in 2023. This trend indicates that while the company faced heavy equity erosion likely due to losses or impairments during 2020-2021, it started to stabilize or recover its equity base in the following years.

Invested Capital

Invested capital decreased steadily from $35.5 billion in 2019 to $29.1 billion in 2021, reflecting contraction or write-downs in invested assets or net working capital components. From 2021 onwards, invested capital showed a modest recovery, increasing to $30.9 billion in 2022 before slightly declining to $30.5 billion in 2023. This pattern suggests some stabilization or reinvestment activities after the initial decline.

Overall, the data signals a company that expanded its debt significantly in the early years of the period analyzed, likely under challenging conditions around 2020 and 2021, as reflected by the sharply increased deficit and reduced invested capital. The trend reverses partially after 2021, with reductions in debt and improvements in equity deficit indicating a phase of financial repair and stabilization. The relatively stable invested capital in later years suggests cautious reinvestment or asset base recovery.

The period under review demonstrates significant volatility in financial performance, as reflected by the economic profit and economic spread ratio. A substantial shift from positive economic profit in 2019 to significant losses in subsequent years is observed, followed by a return to modest profitability in the most recent year.

Economic Profit

Economic profit began at US$243 million in 2019. A dramatic decrease occurred in 2020, resulting in a loss of US$12,803 million. Losses continued in 2021 and 2022, albeit at reduced levels of US$3,044 million and US$690 million, respectively. By 2023, economic profit had recovered to US$100 million, indicating a return to positive value creation, though at a level substantially below that of 2019.

Invested Capital

Invested capital decreased from US$35,495 million in 2019 to US$31,408 million in 2020. It continued to decline to US$29,074 million in 2021 before experiencing a slight increase to US$30,859 million in 2022. The level of invested capital remained relatively stable in 2023, at US$30,476 million. The overall trend suggests a contraction in the capital base followed by stabilization.

Economic Spread Ratio

The economic spread ratio mirrored the trends in economic profit. It started at 0.68% in 2019, then plummeted to -40.76% in 2020. The ratio remained negative in 2021 (-10.47%) and 2022 (-2.23%), indicating that returns on invested capital were below the cost of capital. A positive shift occurred in 2023, with the ratio reaching 0.33%, signifying that returns on invested capital exceeded the cost of capital, albeit marginally.

The substantial negative economic spread ratio in 2020 suggests a period of particularly poor financial performance relative to the capital employed. The subsequent improvement in the economic spread ratio in 2022 and 2023 indicates a recovery, but the 2023 value remains considerably lower than the 2019 level. The relationship between economic profit and the economic spread ratio is consistent, with the ratio directly reflecting the magnitude and direction of economic profit.

The economic profit margin exhibited significant volatility over the five-year period. Initially positive, it experienced a substantial decline, followed by a gradual recovery towards minimal profitability. A detailed examination of the economic profit margin and its underlying components reveals key trends in financial performance.

Economic Profit Margin

In 2019, the economic profit margin stood at 0.53%, indicating a modest level of value creation relative to operating revenues. This margin experienced a dramatic decrease in 2020, plummeting to -73.85%. This substantial negative value suggests a significant shortfall in generating returns exceeding the cost of capital. The margin remained negative in 2021 and 2022, at -10.19% and -1.41% respectively, although the magnitude of the loss diminished year-over-year. By 2023, the economic profit margin had recovered to 0.19%, approaching profitability but remaining relatively low.

The fluctuations in the economic profit margin closely mirror the changes in economic profit. The large negative economic profit in 2020 directly drove the substantial decline in the margin. The subsequent improvements in economic profit in 2021, 2022, and 2023 are reflected in the progressively less negative, and ultimately positive, economic profit margin. Concurrently, operating revenues demonstrate a recovery from the low point in 2020, increasing from US$17,337 million to US$52,788 million in 2023. However, the recovery in revenues alone did not immediately translate into a positive economic profit margin, indicating that the cost of capital remained a significant factor.

The return to a positive, albeit small, economic profit margin in 2023 suggests an improvement in the company’s ability to generate returns that cover its cost of capital. However, the low margin indicates that further improvements in operational efficiency and/or revenue generation are necessary to achieve substantial value creation.