American Airlines Group Inc. (NASDAQ:AAL)

An analysis of the annual financial data reveals several key trends in profitability, capital cost, invested capital, and economic profit over the five-year period ending December 31, 2023.

Net Operating Profit After Taxes (NOPAT)

There is a notable fluctuation in NOPAT values over the period. In 2019, the company reported a positive NOPAT of 3,350 million US dollars. However, this figure drastically declined to a negative value of -10,143 million US dollars in 2020, indicating significant operating losses. The losses continued into 2021, albeit at a reduced magnitude (-736 million US dollars). Recovery is evident from 2022 onward, with positive NOPAT values of 2,040 million US dollars in 2022 and 2,815 million US dollars in 2023, suggesting restored operational profitability.

Cost of Capital

The cost of capital percentage remained relatively stable but showed slight variation throughout the period. Starting at 7.68% in 2019, it decreased marginally to 7.54% in 2020 and further to 7.14% in 2021. Subsequently, there was an upward trend to 8.03% in 2022 and a further increase to 8.11% in 2023. This increase may reflect changes in market conditions or risk assessments impacting the company’s capital costs.

Invested Capital

The invested capital decreased from 35,495 million US dollars in 2019 to 31,408 million US dollars in 2020 and further to 29,074 million US dollars in 2021. This decline may correspond to asset reductions or divestitures. In 2022, invested capital rose slightly to 30,859 million US dollars but then decreased again to 30,476 million US dollars in 2023, indicating some fluctuations but an overall downward adjustment compared to the initial balance in 2019.

Economic Profit

The economic profit followed a highly volatile course. It was positive at 624 million US dollars in 2019 but significantly negative at -12,510 million US dollars in 2020. Though still negative in 2021 (-2,812 million US dollars) and 2022 (-439 million US dollars), the losses diminished over time. By 2023, economic profit returned to a positive value of 342 million US dollars, illustrating improved profitability after the heavy declines witnessed during the pandemic-related period.

Overall, the data reflects a severe financial impact during 2020, likely due to external factors causing large operating losses and economic profit deficits. Subsequent years show a gradual recovery in operating performance and economic value creation, supported by moderate changes in invested capital and a rising cost of capital. The trend towards positive NOPAT and economic profit in 2023 suggests improving financial health and operational efficiency.

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.

Economic Profit

The economic profit demonstrated significant volatility throughout the five-year period. It was positive at 624 million USD in 2019 but experienced a drastic decline in 2020, reaching a substantial negative value of -12,510 million USD. While remaining negative, the losses decreased in magnitude over the next two years, recording -2,812 million USD in 2021 and -439 million USD in 2022. By 2023, the economic profit turned positive again, amounting to 342 million USD.

Invested Capital

The invested capital showed a downward trend from 35,495 million USD in 2019 to 29,074 million USD in 2021. This was followed by a modest recovery through 2022 and 2023, with the values increasing to 30,859 million USD and then slightly decreasing to 30,476 million USD, respectively. Overall, the capital invested saw a net decline over the period but stabilized in the latter years.

Economic Spread Ratio

The economic spread ratio fluctuated considerably, mirroring the patterns observed in economic profit. It started at a positive 1.76% in 2019 but sharply dropped to -39.83% in 2020, indicating a substantial negative return on invested capital during that year. The ratio improved gradually over the subsequent years, rising to -9.67% in 2021 and -1.42% in 2022, before turning positive again at 1.12% in 2023.

Overall Observations

The company experienced significant financial challenges in 2020, as evidenced by the large negative economic profit and economic spread ratio. These adverse conditions appear to have been mitigated over the following years, with gradual reductions in losses and eventual return to profitability by 2023. Despite the decline in invested capital over the period, stabilization occurred after 2021, suggesting adjustments in the capital base possibly in response to economic conditions or strategic shifts.

The financial data reveals significant fluctuations and a general recovery trajectory over the five-year period.

Economic Profit

The economic profit exhibited a drastic decline from a positive $624 million in 2019 to a substantial loss of $12,510 million in 2020, reflecting the severe impact on profitability during that year. Although losses continued in 2021 and 2022, the magnitude of these losses decreased notably, with values of $2,812 million and $439 million respectively. By 2023, the company returned to positive economic profit levels, reporting $342 million, indicating a gradual restoration of profitability.

Operating Revenues

Operating revenues followed a similar pattern, sharply falling from $45,768 million in 2019 to $17,337 million in 2020, which aligns with the economic profit downturn. After 2020, revenues increased steadily, reaching $29,882 million in 2021 and nearly recovering to pre-pandemic levels by 2022 with $48,971 million. This upward trend continued in 2023, with revenues rising to $52,788 million, surpassing the 2019 figure.

Economic Profit Margin

The economic profit margin displays a similar volatility, with a positive margin of 1.36% in 2019, plunging to a highly negative -72.16% in 2020. This sharp contraction illustrates the severe profitability pressure relative to revenues during that year. Subsequent years show a gradual improvement with the margin moving from -9.41% in 2021 to -0.9% in 2022, and finally returning to a positive 0.65% in 2023, signaling a recovery in operational efficiency and profitability relative to revenue.

In summary, the data reflects a major disruption in financial performance in 2020, followed by a consistent recovery in subsequent years. Both revenues and economic profit have rebounded strongly, with 2023 showing positive profitability measures, suggesting a return toward stable financial health.