Delta Air Lines Inc. (NYSE:DAL)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited initial stability followed by substantial volatility, while the cost of capital generally decreased over the observed timeframe. Invested capital showed a moderate increase overall, though not consistently year-over-year. These factors combined to produce a marked shift in economic profit performance.

NOPAT Trend

Net operating profit after taxes began at US$6,446 million in 2017, decreased to US$6,032 million in 2018, and then increased to US$6,651 million in 2019. A dramatic decline occurred in 2020, resulting in a loss of US$13,902 million, before a partial recovery to US$1,932 million in 2021. This suggests a significant external shock impacted profitability in 2020, followed by a limited rebound.

Cost of Capital Trend

The cost of capital started at 12.78% in 2017, rising to 13.49% in 2018 and 13.56% in 2019. A notable decrease was observed in 2020, falling to 10.24%, and continued to decline slightly to 9.92% in 2021. This downward trend may reflect changes in market conditions or the company’s risk profile.

Invested Capital Trend

Invested capital was US$44,409 million in 2017, decreasing to US$43,326 million in 2018. It then increased to US$47,580 million in 2019, decreased to US$44,197 million in 2020, and rose again to US$47,166 million in 2021. The fluctuations suggest active capital management or potentially reflect asset sales and acquisitions.

Economic Profit Trend

Economic profit began at US$771 million in 2017, declining to US$185 million in 2018 and US$198 million in 2019. A substantial loss of US$18,427 million was recorded in 2020, followed by a loss of US$2,748 million in 2021. The negative economic profit in 2020 and 2021 indicates that the company’s returns did not exceed its cost of capital during those periods, despite the partial recovery in NOPAT in 2021.

The correlation between NOPAT and economic profit is evident. The significant decline in NOPAT in 2020 directly resulted in a substantial negative economic profit. While the cost of capital decreased during this period, the magnitude of the NOPAT decline outweighed the benefit of the lower cost of capital. The limited recovery in NOPAT in 2021 was insufficient to generate positive economic profit.

The financial data reveals significant fluctuations in key profitability metrics over the analyzed periods. Notably, net income exhibited a positive and steadily increasing trend from 2017 through 2019, rising from 3,577 million US dollars to 4,767 million US dollars. However, 2020 marked a sharp reversal, with net income declining drastically to a loss of 12,385 million US dollars. This adverse outcome was partially mitigated in 2021, which showed a rebound to a positive net income of 280 million US dollars, although this level remains substantially below the pre-2020 figures.

Similarly, net operating profit after taxes (NOPAT) followed a comparable trajectory. The company maintained strong operating profitability between 2017 and 2019, with NOPAT values ranging from 6,032 million to 6,651 million US dollars. In 2020, a pronounced downturn occurred, as NOPAT fell to a negative 13,902 million US dollars, indicating severe operational challenges during this period. The partial recovery in 2021 saw NOPAT increase to 1,932 million US dollars, signaling some restoration of operational profitability, albeit still at a reduced scale relative to the pre-2020 period.

Profitability Trends

Up through 2019, both net income and NOPAT demonstrated healthy growth and strong profitability.

The year 2020 experienced a drastic and abnormal downturn in profitability, reflecting an exceptional negative impact.

In 2021, there was a modest recovery, though profitability remained significantly below previous peak levels.

Operational Insights

The parallel movement between net income and NOPAT suggests that the core operations rather than extraordinary items primarily drove the financial volatility.

The deep losses in 2020 indicate substantial operational disruptions or extraordinary challenges during that year.

The recovery in 2021 implies initial success in addressing those challenges, though full recovery to earlier profitability levels was not yet achieved.

Overall, the data suggests a company that encountered a period of severe financial distress in 2020, likely due to external or market-wide factors, followed by an initial phase of recovery with cautious improvement in profitability metrics in the subsequent year.

Income Tax Provision (Benefit)

The income tax provision exhibits a fluctuating trend over the analyzed period. Starting at $2,124 million in 2017, it decreased notably to $1,216 million in 2018, before experiencing a moderate increase to $1,431 million in 2019. In 2020, there is a significant shift to a considerable tax benefit of -$3,202 million, indicating either substantial tax credits or loss carrybacks during this period, potentially related to extraordinary circumstances. In 2021, the tax provision returns to a positive value of $118 million, reflecting a recovery or normalization relative to the previous year.

Cash Operating Taxes

Cash operating taxes show a mixed and irregular pattern. In 2017, the amount was $381 million, followed by a negative value of -$38 million in 2018, suggesting a possible tax refund or adjustment. The figure then increases slightly to $44 million in 2019 and rises more substantially to $191 million in 2020. The upward trend continues in 2021, reaching $323 million. This increase in cash operating taxes over the last two years could indicate improving operational profitability or changes in tax payment timing and policies.

Total reported debt & leases

From 2017 to 2019, the total reported debt and leases showed a declining trend, decreasing from $21,021 million to $17,255 million. However, there was a significant increase in 2020, with the amount rising sharply to $35,548 million. This elevated level was largely maintained in 2021 at $34,679 million, indicating a substantial buildup of debt and lease obligations during the later years.

Stockholders’ equity

Stockholders' equity exhibited relative stability from 2017 through 2019, fluctuating moderately around the $13,600 to $15,300 million range. In 2020, equity experienced a dramatic reduction to $1,534 million, reflecting severe erosion likely due to losses or adjustments during that period. In 2021, there was a partial recovery, with equity increasing to $3,887 million, though it remained substantially below pre-2020 levels.

Invested capital

Invested capital showed an overall upward trend from 2017 to 2019, rising from $44,409 million to $47,580 million. In 2020, it decreased to $44,197 million, likely driven by changes in debt and equity components as noted. The capital base rebounded in 2021, climbing back to $47,166 million, close to the high point observed in 2019, suggesting efforts to stabilize and restore invested capital after the disruptions of 2020.

The economic spread ratio exhibited significant fluctuations between 2017 and 2021. Initially positive, the ratio declined substantially, culminating in negative values during the latter part of the analyzed period. This movement correlates with changes in economic profit and invested capital.

Economic Spread Ratio

In 2017, the economic spread ratio stood at 1.74%, indicating a positive spread between the return on invested capital and the cost of capital. This ratio decreased to 0.43% in 2018 and remained relatively stable at 0.42% in 2019, suggesting a narrowing of the spread. A dramatic decline occurred in 2020, with the ratio falling to -41.69%, followed by a less severe decrease to -5.83% in 2021. These negative values signify that the cost of capital exceeded the return generated from invested capital in both years.

The economic spread ratio’s trajectory mirrors the performance of economic profit. While economic profit was positive in 2017, 2018, and 2019, it experienced a substantial loss in 2020 and a continued, though lessened, loss in 2021. Invested capital remained relatively consistent throughout the period, with a slight increase observed in 2019 and 2021. The significant drop in the economic spread ratio in 2020 and 2021 is primarily attributable to the substantial decline in economic profit, despite the relatively stable invested capital base.

Invested Capital

Invested capital showed modest variability over the five-year period, ranging from US$43,326 million to US$47,580 million. The largest increase occurred between 2018 and 2019, while a slight decrease was noted between 2019 and 2020. The level of invested capital in 2021 was comparable to that of 2019.

The observed trend suggests a weakening of the company’s ability to generate returns exceeding its cost of capital. The substantial negative economic spread ratios in 2020 and 2021 warrant further investigation to understand the underlying factors contributing to this decline and to assess the sustainability of the current capital allocation strategy.

The economic profit margin exhibited significant fluctuations between 2017 and 2021. Initial profitability declined substantially before experiencing a dramatic downturn and subsequent partial recovery. A detailed examination of the trends is presented below.

Economic Profit Margin

In 2017, the economic profit margin stood at 1.86%. This figure decreased to 0.41% in 2018 and remained relatively stable at 0.42% in 2019. A substantial decline occurred in 2020, with the margin plummeting to -105.00%. A partial recovery was observed in 2021, as the margin improved to -9.08%, though it remained negative.

Relationship to Adjusted Operating Revenue

Adjusted operating revenue generally increased from 2017 to 2019, moving from US$41,436 million to US$47,094 million. However, a significant decrease was recorded in 2020, with revenue falling to US$17,549 million. Revenue partially recovered in 2021, reaching US$30,276 million, but remained below pre-2020 levels. The substantial drop in revenue in 2020 appears to correlate with the dramatic decline in the economic profit margin.

Economic Profit Trend

Economic profit followed a similar pattern to the economic profit margin. It decreased from US$771 million in 2017 to US$185 million in 2018 and US$198 million in 2019. A substantial loss of US$18,427 million was recorded in 2020, followed by a loss of US$2,748 million in 2021. The magnitude of the loss in 2020 significantly impacted the economic profit margin.

The observed trends suggest a strong correlation between adjusted operating revenue and economic profitability. The significant revenue decline in 2020 appears to have had a disproportionately negative impact on the economic profit margin, resulting in a substantial loss. While some recovery was evident in 2021, profitability remained considerably lower than in the 2017-2019 period.