United Airlines Holdings Inc. (NASDAQ:UAL)

The period under review demonstrates a significant fluctuation in economic profit. Initially negative, economic profit transitions to positive territory before reverting to negative values. This movement is closely tied to changes in net operating profit after taxes, cost of capital, and invested capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a substantial recovery from a loss of US$797 million in 2021 to a profit of US$2,682 million in 2022. This positive trend continued through 2023, reaching US$4,823 million, and further increasing to US$5,148 million in 2024. A modest increase to US$5,340 million is observed in 2025. This indicates improving operational performance over the analyzed timeframe, although the rate of growth decelerates in the later years.

Cost of Capital

The cost of capital exhibited an increasing trend throughout the period. Starting at 8.75% in 2021, it rose to 9.83% in 2022 and 9.72% in 2023. A more pronounced increase is seen in 2024, reaching 12.22%, and continues to climb to 13.27% in 2025. This suggests increasing risk or changing market conditions impacting the company’s funding costs.

Invested Capital

Invested capital decreased from US$52,534 million in 2021 to US$41,357 million in 2022. A subsequent increase is observed in 2023, reaching US$45,532 million, and continues to grow to US$49,435 million in 2024 and US$50,212 million in 2025. This suggests a period of capital restructuring followed by reinvestment and expansion.

Economic Profit

Economic profit began at a loss of US$5,395 million in 2021, reflecting the negative NOPAT and the impact of the cost of capital on invested capital. The loss lessened to US$1,384 million in 2022, coinciding with the improvement in NOPAT. A positive economic profit of US$397 million is recorded in 2023, indicating that the generated profit exceeded the cost of capital. However, economic profit returns to a loss of US$892 million in 2024 and further declines to US$1,323 million in 2025. This reversal is attributable to the increasing cost of capital outpacing the growth in NOPAT.

In summary, while operational profitability improved significantly between 2021 and 2024, the rising cost of capital ultimately led to a decline in economic profit in the later years of the period. The increasing cost of capital, coupled with a relatively stable NOPAT growth rate, suggests a diminishing return on invested capital.

Net operating profit after taxes (NOPAT) demonstrates a significant improvement over the observed period. Beginning with a negative value in 2021, NOPAT exhibits consistent growth through 2025. This positive trajectory contrasts with the initial net income performance, indicating a strengthening of core operational profitability relative to tax obligations.

NOPAT Trend

In 2021, NOPAT registered at -797 US$ millions, representing a loss. A substantial increase is then observed in 2022, with NOPAT reaching 2,682 US$ millions. This positive trend continues into 2023, where NOPAT further increases to 4,823 US$ millions. The growth rate moderates slightly in 2024, with NOPAT reaching 5,148 US$ millions, and continues at a similar pace in 2025, reaching 5,340 US$ millions.

The magnitude of the increase in NOPAT from 2021 to 2022 is particularly noteworthy. While net income also improved during this period, the NOPAT increase suggests improvements in operational efficiency and profitability beyond simply accounting for tax effects. The consistent positive NOPAT values from 2022 onwards indicate a sustained ability to generate profit from core operations after accounting for taxes.

Relationship to Net Income

While both net income and NOPAT show improvement over the period, NOPAT consistently exceeds net income in 2022, 2023, 2024, and 2025. This difference suggests the presence of significant non-operating items or accounting adjustments impacting net income. The divergence between the two metrics warrants further investigation to understand the underlying drivers of these differences.

The sustained growth in NOPAT from 2022 to 2025 suggests effective management of operational costs and revenue generation. The incremental increases in NOPAT in the later years, while positive, indicate a potential slowing of growth momentum, which may require further analysis to determine its sustainability.

The relationship between income tax expense and cash operating taxes demonstrates notable fluctuations over the five-year period. Income tax expense exhibits a significant swing from a benefit in 2021 to positive expenses in subsequent years, while cash operating taxes show a more moderate, generally decreasing trend.

Income Tax Expense

Income tax expense initially registered as a benefit of US$593 million in 2021. This shifted dramatically to an expense of US$253 million in 2022, followed by increases to US$769 million in 2023 and US$1,019 million in 2024. A slight decrease is observed in 2025, with income tax expense reported at US$953 million. This pattern suggests a changing profitability profile and/or tax rate environment.

Cash Operating Taxes

Cash operating taxes began at US$374 million in 2021, decreasing to US$352 million in 2022. A more pronounced decline occurred in 2023, falling to US$274 million, before a modest increase to US$288 million in 2024. The trend continues downward in 2025, with cash operating taxes reported at US$221 million. This indicates a reduction in actual cash outflows related to operations-based taxes.

The divergence between income tax expense and cash operating taxes is substantial. While income tax expense increased significantly from 2021 to 2024, cash operating taxes generally decreased. This discrepancy could be attributed to several factors, including deferred tax assets/liabilities, changes in tax credits utilized, or differences between accounting and tax depreciation methods. The reduction in cash operating taxes, despite rising income tax expense, may positively impact free cash flow.

Relationship between Metrics

In 2021, the income tax benefit significantly exceeded cash operating taxes. As income tax expense became positive, the difference between the two metrics narrowed. By 2025, income tax expense remained considerably higher than cash operating taxes, suggesting a growing reliance on non-cash tax benefits or timing differences in tax payments.

Further investigation into the components of income tax expense and the nature of the differences between income tax expense and cash operating taxes is recommended to fully understand the underlying drivers of these trends.

The composition of invested capital at the company exhibits notable fluctuations over the five-year period. Total reported debt & leases generally decreased, while stockholders’ equity consistently increased. These movements have a combined effect on the overall invested capital, which initially decreased before showing signs of stabilization and modest growth.

Total Reported Debt & Leases

A consistent downward trend is observed in total reported debt & leases, decreasing from US$41,063 million in 2021 to US$31,036 million in 2025. The most significant reduction occurred between 2021 and 2022, with a decrease of US$3,763 million. Subsequent annual decreases were more moderate, suggesting a slowing rate of debt reduction.

Stockholders’ Equity

Stockholders’ equity demonstrates a clear upward trajectory throughout the period. Beginning at US$5,029 million in 2021, it increased to US$15,282 million by 2025. The rate of growth accelerated over time, with the largest annual increase occurring between 2023 and 2024 (US$3,351 million). This indicates increasing retained earnings and/or capital contributions.

Invested Capital

Invested capital initially decreased from US$52,534 million in 2021 to US$41,357 million in 2022, primarily driven by the substantial reduction in debt. It then experienced a moderate increase, reaching US$45,532 million in 2023, before continuing to rise to US$50,212 million in 2025. The stabilization and subsequent growth in invested capital suggest a shift in the company’s capital structure, with equity gains partially offsetting the decline in debt. The increase between 2024 and 2025 was relatively small, at US$777 million.

The interplay between decreasing debt and increasing equity suggests a strengthening financial position. While the initial decrease in invested capital might have raised concerns, the subsequent stabilization and modest growth indicate a more balanced and potentially sustainable capital structure.

The economic spread ratio exhibited significant fluctuation over the five-year period. Initially negative, the ratio improved substantially before declining again. Economic profit transitioned from substantial losses to a modest profit, then reverted to losses, while invested capital demonstrated an overall increasing trend with some interim reduction.

Economic Spread Ratio

The economic spread ratio began at -10.27% in 2021, indicating a considerable shortfall in returns relative to the cost of capital. A marked improvement was observed in 2022, with the ratio increasing to -3.35%, suggesting a narrowing of the gap between returns and capital costs. The ratio turned positive in 2023, reaching 0.87%, signifying that returns exceeded the cost of capital. However, this positive trend was short-lived, as the ratio decreased to -1.81% in 2024 and further to -2.64% in 2025, indicating a renewed underperformance relative to the cost of capital. The decline in the latter two years suggests increasing pressure on profitability or an increase in the cost of capital, or a combination of both.

Economic Profit

Economic profit demonstrated a clear trajectory from substantial losses to a brief period of profitability. A loss of US$5,395 million was recorded in 2021, which decreased to US$1,384 million in 2022. The company achieved a profit of US$397 million in 2023. However, economic profit declined to a loss of US$892 million in 2024 and further to US$1,323 million in 2025. This pattern mirrors the fluctuations observed in the economic spread ratio, indicating a strong correlation between overall profitability and the ability to generate returns exceeding the cost of capital.

Invested Capital

Invested capital decreased from US$52,534 million in 2021 to US$41,357 million in 2022. A subsequent increase was noted in 2023, reaching US$45,532 million, and continued through 2025, reaching US$50,212 million. This overall upward trend in invested capital suggests ongoing investment in the business, despite the volatility in economic profit. The initial decrease in 2022 may reflect divestitures or a reduction in capital-intensive assets.

The interplay between these three metrics suggests a complex financial performance. While the company increased its invested capital, its ability to generate returns exceeding the cost of that capital was inconsistent, resulting in fluctuating economic profit and a volatile economic spread ratio.

The economic profit margin exhibited significant fluctuation over the five-year period. Initially negative, it improved substantially before declining again. A review of the underlying figures reveals a complex relationship between economic profit and adjusted operating revenue.

Economic Profit Margin Trend

In 2021, the economic profit margin was significantly negative, registering at -21.63%. This indicates a substantial shortfall in generating returns exceeding the cost of capital. A marked improvement occurred in 2022, with the margin increasing to -3.05%, suggesting a reduction in the gap between returns and capital costs. The margin turned positive in 2023, reaching 0.73%, indicating that the company generated economic profit. However, this positive trend was short-lived, as the margin reverted to negative territory in 2024 (-1.56%) and further deteriorated in 2025 (-2.23%).

Relationship to Economic Profit

The economic profit margin’s trajectory closely mirrors that of economic profit itself. The substantial negative economic profit in 2021 directly contributed to the low margin. The improvement in economic profit to positive territory in 2023 drove the margin into positive values. The subsequent declines in economic profit in 2024 and 2025 resulted in corresponding negative margins. This suggests a strong correlation between overall profitability and the economic profit margin.

Relationship to Adjusted Operating Revenue

Adjusted operating revenue demonstrated consistent growth throughout the period, increasing from US$24,941 million in 2021 to US$59,406 million in 2025. Despite this revenue growth, the economic profit margin did not consistently improve. The inability of the margin to maintain positive values, even with substantial revenue increases, suggests that the cost of capital, or operational inefficiencies, are increasing at a rate that offsets revenue gains. The widening negative margin in 2025, despite continued revenue growth, reinforces this observation.

Overall, the analysis indicates a volatile period for economic profitability. While revenue increased consistently, the company struggled to translate that revenue growth into sustained economic profit, as evidenced by the fluctuating and ultimately negative economic profit margin.