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The Impulsive podcast discusses research on three airline companies: American Airlines, Delta Airlines, and Southwest Airlines. The CEOs of American and Delta made changes to their rewards programs due to backlash during the pandemic. Southwest followed suit and made changes to their model as well. The podcast also discusses financial ratios, with Delta performing well in debt-to-equity and profit margin, but struggling with short-term liquidity. Overall, Delta is seen as the safest investment option among the three companies. It's showtime. Hey everyone, welcome to Impulsive, the number one podcast at Stack. I am your host for today, Vasilios Togliatti, and today with me I have Nacho Simon. Hello Vasilios, thank you for having us today. Of course, I have Nick Shalaba. Hi, I'm glad to be here. And I have Conor Tye. Hi, thank you for having us today. So for today in our podcast, each person has done excessive finance research for an airline company. Nacho, can you tell us which company you have? Of course, yes. Well, I picked American Airlines, I think that we all know what company it is. In general terms, it's located in Dallas. You can probably know it's the biggest airline in the world with almost 6,800 daily flights to nearly 350 destinations in 48 countries. That's awesome. Nick, can you tell us a little about your company? I did Delta Airlines. It was established in 1925, so it's almost already 100 years old. That's pretty crazy. And the CEO is Ed Bastian. Okay. And then Conor, can you tell us about your company? Southwest is a company that operates in the airline industry, providing their passengers with a quick and easy way of transportation. It prides itself on being the world's largest low-cost carrier within their industry. Very interesting. So of course, we've also taken a closer look to the industry as a whole, which is the airline industry. The airline industry has many highs and lows, like a roller coaster. Think of it kind of as a huge theme park in the sky where airlines compete to take us to far and near destinations. Working in the airline industry has many thrilling parts, from taking relaxing trips to distant locations and, of course, what we all know to be the inevitable times when we all despise waiting in line for security. So now that we know our industry better and the company, my friends here have some recent news for us. So, Nick, why don't you start us off with some of the recent news? All right. So this is around two months ago, the week of September 28th. The CEO announces that they will be changing their rewards program. This was due to a backlash when COVID happened. A lot of the people that were on the highest tier, the diamond tier, kept their status even though they weren't flying and they didn't want that to happen, which might have a lot of backlash. So the CEO reverted back to that. So they've made it easier to reach the diamond status, which it wasn't originally. But the CEO does point out that eventually that they are going to make it a bit more difficult. And with news like this, there is a general positive trend with news and the price of it, of the stock, which is kind of weird when I say what this seems like bad news because it's a recent backlash, but the spikes are inconsistent. The highest spike was in July when it went up to 48 with the price. But then in like April, there was a lot of news, but the price leveled off around 34, which is normal. So the spikes are inconsistent. But news does have a general positive trend with the price. Well, very interesting, I guess. Also, I want to emphasize that the airline industry is going through a context that is not normal, or at least it hasn't been normal through the last probably 20 years after the caucasic war. And as you guys know, Ukraine is under a war against Russia, and also another war conflict just has started in Israel with the Palestinians and I guess Hamas. So that's important because not every airline operates in the same part of the world, but the companies that we have choose, they all go or at least they have like a couple of routes through that airspace. Southwest actually followed suit with Delta. They made changes to their current model, making it easier for passengers to earn and access A-list status, which will include CETA-free to better perks such as free beverages and access to exclusive lounges within the airports. Very interesting. So now that we're in the show a little bit more in real time, what the company news have been, I would like to shift this talk and talk a bit more about ratios. And first I want to talk about financial ratios, what they are in general. They generally state the relative magnitude of two selected numerical values taken from an enterprise's financial statements. And I'm going to give it to Nick now to talk a bit more about the ratios in the companies and the industry. All right. Well, first do some of the ratios that Delta did the best at, at least according compared to the groups on the other airlines that we researched into. Delta was the best in debt-to-equity, which is you take total debt and you divide that by total equity. And then another thing that it did very well was in the profit margin. Its return on assets was at 4.66, so your return on assets is net income divided by total assets. And then you take – and Delta was at 4.66, while it's the second highest. And what we said it was 2.43, so that has a clear lead. But some ratios that it struggled in was a bunch of the short-term liquidity, which is things like current ratio, which is current assets divided by current liabilities. It was almost at the minimum, at like the lowest possible, which was 3.37. Delta was at 0.44. Quick ratio was also another thing it struggled in, which makes sense because quick ratio is very similar to current ratio. You just take out inventory with the current assets, and that was at 0.3, while the minimum was at 0.24. So, it has the highest and lowest. Very interesting. Well, I mean, I'm going to emphasize one thing to keep the context on. We just get out of the pandemic, so I think it's important to talk about the quick ratio because it just determinates how the – what is the potential capacity of debt for a company. So yes, also when comparing business in the same industry, the current ratio, which measures a company liquidity, compares its current assets to its current liabilities, as Nick said. Okay, let's go with, for example, the total debt to total assets. That basically shows the proportion of a company assets owned by shareholders versus the creditors. For example, people from whom the company has borrowed money. Along with the debt to equity ratio and the debt service ratio, it is one of the three calculations used to determine a company's debt capacity. I mean, the graph from American Airlines clearly shows that with the arrival of the pandemic, knowing that there would be a lockdown and airports were going to be closed, American Lady Debt goes up as probably every company in the world. Southwest has a fairly good current ratio when compared to its peers. They're about 0.45 higher than the average and nearly 1.0 higher than Delta. They seem to struggle in their return on asset ratio when compared to its peers. They are the lowest among the three companies we have talked about in this category. Interesting. So, now that we listened to all the different ratios for each airline, what the current numbers are and everything, this can lead us into understanding a bit more about the DuPont identity and the three factors of it. That is profit margin, asset turnover, and assets over equity. So, Nick, why don't you tell us a bit more about that? All right. For Delta, when comparing it to Southwest and American Airlines, its profit margin was the worst at only 2.61. Its asset turnover was 0.70. That's tied for the best of the three that we looked for. I don't remember which one that was tied with compared to the other two airlines, but it was tied for the best. And then its assets over equity was by far the best with an astounding 9.72. Interesting. So, now that we've heard all that, which company do you think that we should invest that out of the three? Well, despite Delta having not the highest profit margin, its asset turnover is good and its assets over equity is so far ahead of the rest that I think that looking at the DuPont, you get the highest total when you multiply those three factors. So, I think Delta would be the safest investor right now. Yeah, I completely agree with Nick. I think Delta management might be the best from the three companies that we see. What do you think? I agree with both of you. I believe Delta has the slight edge over all three companies, but as a second, a close second, Southwest definitely holds some good financials in there as well. Absolutely. Yeah. Okay. So, that is going to be it for today, guys. Thank you for listening to Impulsive, number one podcast at Stag. And I will see you all, guys, next time. Thank you. Thank you very much. Yep.