Share repurchases have remained one of United Airlines’ (UAL) key strategies in terms of enhancing shareholders’ wealth.
The company initiated its first share buyback program in 2014, and since then it has repurchased $6.9 billion worth of its stock as of the end of 2018.
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In 2015, 2016, 2017, and 2018, the airline repurchased $1.2 billion, $2.6 billion, $1.8 billion, and $1.2 billion worth of common stock, respectively. Except for during a few months in 2018, airline companies have enjoyed the benefit of moderate fuel prices for the last three years, which has helped them improve their profitabilities and free cash flows.
Compared with dividend payments, share buybacks are considered a more tax-efficient way to enhance shareholders’ wealth. Also, as share repurchases lead to a decline in the number of outstanding shares, they boost a company’s EPS.
United Airlines announced a $3 billion share repurchase program in December 2017, which represented ~17% of its total market value of $18 billion at the time of the announcement. The airline bought back over $1.2 billion worth of its common stock in 2018, and now ~$1.8 billion is remaining under its current authorization.
The company’s huge cash balances and cash flow–generating ability provide it with the financial flexibility to undertake shareholder-friendly initiatives. The company ended 2018 with ~$4 billion in cash, cash equivalents, and short-term investments. During the last year, United Airlines generated $6.2 billion in cash flows from operating activities.
United Airlines’ peers
A healthy travel demand environment and lower oil prices have caused US air carriers’ (IYT) cash flows and net income to grow immensely in the last four years. Increased cash flows have helped airlines enhance their capital return policies.
United Airlines’ major competitors have also increased their share repurchases and dividend payments in the last few years. American Airlines (AAL), Southwest Airlines (LUV), and Delta Air Lines (DAL) returned $986 million, $2.3 billion, and $2.5 billion, respectively, to shareholders in 2018 through share buybacks and dividend payments.