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UAL Enhances Shareholders’ Wealth through Share Repurchases

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Share repurchases

United Continental (UAL) has always tried to enhance shareholders’ wealth through share repurchases. The company started its buyback program in 2015. As of 2018, United Continental has repurchased ~$6.9 billion worth of its common stock.

United Continental repurchased $1.2 billion worth of common stock in 2015, $2.6 billion in 2016, $1.8 billion in 2017, and $1.2 billion in 2018. Except for a few months in 2018, airline (IYT) companies have been enjoying the benefit of lower fuel prices for the past few years, which improved their profitability and free cash flow.

Share repurchases are a more tax-efficient way to create shareholders’ value compared to paying dividends. Since share buybacks lead to a decline in the number of outstanding shares, they boost the company’s EPS.

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In December 2017, United Continental’s board approved a share buyback program worth $3 billion, which was ~17% of the company’s market cap of $18 billion at the time of the announcement. Under the current authorization, the company has repurchased more than $1.2 billion worth of its common stock in 2018.

United Continental’s huge cash balances and cash flow generating ability provide it with the financial flexibility to undertake shareholder-friendly initiatives. In 2018, United Continental generated $6.2 billion of cash flows from operating activities. The airline had ~$4 billion of cash, cash equivalents, and short-term investments at the end of 2018.

United Continental’s peers

The strong domestic travel demand environment and low fuel costs in the last four years caused US air carriers’ net income and cash flows to increase. As a result, airline companies have enhanced their capital return policies.

In recent years, United Continental’s top peers have also increased their dividend payments and share repurchases. According to Delta Air Lines’ (DAL) fourth-quarter results, the company has returned over $1.3 billion to shareholders through dividends and share buybacks.

Other major airlines haven’t reported their quarterly numbers yet. In the first three quarters, Southwest Airlines (LUV) and American Airlines (AAL) have returned $1.8 billion and $940 million, respectively, in the form of dividends and share repurchases.

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