Free cash flow growth
Delta’s free cash flow, calculated as operating cash flow minus capital expenditure, increased almost 77% to 1.5 billion in 2Q14 from $870 million in 2Q13. Delta estimates a higher free cash flow in 2014 because its expects lower capital expenditure and higher operating cash flows compared to 2013. The higher the free cash flows the better it is for creditors and shareholders as free cash flows are available for debt payments and provide returns to shareholders after providing for capital expenditures and working capital requirements that keep the company’s operations running. With this strong cash flow Delta is able to provide returns to shareholders in the form of dividends and share repurchases.
Higher dividends and share buy-backs
As part of its May, 2013, plan to return $1 billion to shareholders, Delta declared a $0.06 per share dividend. The total dividends in the first half of 2014 amounted to $101 million. Delta also completed the $500 million share repurchase program with the purchase of 7.3 million shares at $250 million in 2Q14.
Delta expects to return an additional $2.75 billion to shareholders through 2016. According to the new program, it announced a 50% increase in quarterly dividend to $0.09 per share beginning from September quarter from $0.06 in 2Q13 and a new $2 billion share repurchase program to be completed by 2016. During 2Q14, Delta (DAL) repurchased 2.5 million shares at $100 million as part of this new program. In 2013, among its peers only Southwest (LUV) declared dividends and share buy-backs. American (AAL), United (UAL), and JetBlue (JBLU) didn’t declare any dividends.