American Airlines Group Inc. (NASDAQ:AAL)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) experienced substantial volatility, beginning with a positive value in 2019, followed by a large loss in 2020, a smaller loss in 2021, and returning to positive territory in 2022 and 2023. Invested capital decreased from 2019 to 2021, then showed a slight increase in 2022, followed by a minor decrease in 2023. The cost of capital remained relatively stable throughout the period, with a slight increase observed in the most recent year.

Economic Profit Trend

Economic profit mirrored the volatility of NOPAT. A positive economic profit of US$241 million was recorded in 2019. This was followed by a substantial loss of US$12,804 million in 2020, indicating a significant underperformance relative to the cost of capital. The loss lessened to US$3,045 million in 2021, and further improved to a loss of US$691 million in 2022. By 2023, economic profit had nearly reached parity, registering a modest profit of US$99 million.

NOPAT and Economic Profit Relationship

The strong correlation between NOPAT and economic profit is evident. The large negative NOPAT in 2020 directly resulted in the largest economic loss. The subsequent recovery in NOPAT in 2022 and 2023 contributed to the reduction in economic loss and eventual achievement of a small economic profit in 2023. This suggests that profitability is a primary driver of economic value creation.

Cost of Capital Stability

The cost of capital remained within a narrow range of 7.94% to 8.91% throughout the period. This relative stability suggests that changes in economic profit were primarily driven by fluctuations in NOPAT, rather than shifts in the required rate of return on invested capital. The slight increase in the cost of capital in 2023 may present a future challenge to maintaining or improving economic profit.

Invested Capital Dynamics

Invested capital experienced a decline from 2019 to 2021, potentially reflecting strategic divestitures or reduced capital expenditures. The subsequent stabilization and slight increase in 2022 and 2023 may indicate a renewed focus on growth or reinvestment. The relationship between changes in invested capital and economic profit is not immediately apparent, requiring further investigation into the specific capital allocation decisions made during this period.

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 modest recovery in the most recent year.

Economic Profit

Economic profit began at US$241 million in 2019. A dramatic decrease occurred in 2020, resulting in a loss of US$12,804 million. Losses continued in 2021 and 2022, albeit at reduced levels of US$3,045 million and US$691 million, respectively. A slight positive economic profit of US$99 million was recorded in 2023, indicating a potential turning point.

Invested Capital

Invested capital experienced a decline from US$35,495 million in 2019 to US$31,408 million in 2020. This was followed by a further reduction to US$29,074 million in 2021. A modest increase to US$30,859 million occurred in 2022, and remained relatively stable at US$30,476 million in 2023. The overall trend suggests a contraction in the capital base, followed by stabilization.

Economic Spread Ratio

The economic spread ratio mirrored the trend in economic profit. It started at 0.68% in 2019, then plummeted to -40.77% in 2020. The ratio remained negative in 2021 (-10.47%) and 2022 (-2.24%), indicating that returns on invested capital were not exceeding the cost of capital. A positive shift occurred in 2023, with the ratio reaching 0.32%, suggesting a narrowing gap between returns and the cost of capital, and a move towards value creation.

The substantial decline in the economic spread ratio in 2020 corresponds with the largest economic loss, highlighting a significant underperformance relative to the cost of capital. The subsequent years show a gradual improvement, culminating in a positive, though still modest, economic spread ratio in 2023. This suggests a recovery in profitability and efficiency, but further monitoring is warranted to confirm a sustained trend.

The period under review demonstrates significant volatility in economic profit and, consequently, the economic profit margin. A substantial shift from positive economic profit in 2019 to considerable losses in subsequent years is evident, followed by a return to modest profitability in the most recent year.

Economic Profit

Economic profit began at US$241 million in 2019. A dramatic decrease occurred in 2020, resulting in a loss of US$12,804 million. While losses lessened in 2021 to US$3,045 million and further in 2022 to US$691 million, economic profit remained negative. A positive value of US$99 million was recorded in 2023, indicating a return to economic profitability, albeit at a relatively low level compared to 2019.

Operating Revenues

Operating revenues experienced a significant contraction in 2020, falling to US$17,337 million from US$45,768 million in 2019. Revenues began to recover in 2021, reaching US$29,882 million, and continued this upward trajectory, reaching US$48,971 million in 2022 and US$52,788 million in 2023. The revenue figures suggest a recovery period following an initial substantial decline.

Economic Profit Margin

The economic profit margin mirrored the fluctuations in economic profit. It stood at 0.53% in 2019. A substantial decline was observed in 2020, with the margin falling to -73.85%. The margin improved to -10.19% in 2021 and -1.41% in 2022, indicating a lessening of losses relative to revenue. The margin turned positive in 2023, reaching 0.19%, though remaining considerably lower than the 2019 level. The trend suggests a correlation between revenue recovery and margin improvement, but the margin has not fully recovered to pre-decline levels.

The substantial losses in economic profit during 2020 and 2021 appear to have been partially offset by revenue growth in 2022 and 2023. However, the economic profit margin, while positive in the latest year, remains significantly below its 2019 value, suggesting that while the company is generating economic profit, it is doing so at a reduced efficiency compared to the earlier period.