Monday, May 19, 2014

United Continental v. American Airlines: First One to a Dividend Wins

Dividends are in with airlines, as Alaska Air (ALK), Delta Air Lines (DAL) and Southwest Airlines (LUV) have all increased theirs so far this year. Cowen’s Helane Becker and Conor Cunningham ponder whether American Airlines (AAL) or United Continental (UAL) will return capital to shareholders first:

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Over the last two weeks three airlines (Alaska Air Group, Delta Air Lines, and Southwest Airlines) announced significant share repurchase authorizations and in two cases (Delta and Southwest) announced an increase to their dividend. Alaska raised their dividend earlier this year. These companies have led the industry in returning capital to shareholders as all three have sound balance sheets, manageable CAPEX plans and increasing profits. The next airlines to return capital to shareholders will likely be United and American. United continues to have PRASM issues which has led to a lagging stock price and potentially pushing out of returning capital to shareholders. United’s management continues to point to the end of 2014 as an announcement date. American is also likely to announce its plans for returning capital to shareholders year-end 2014…It will be interesting to see who announces their plans first: United or American. United has more invested in the announcement as they are several years ahead of American in the merger process but probably several years behind in execution.

Shares of United Continental have gained 2.2% to $41.40 at 11:28 a.m. today, while American Airlines has risen 1.1% to $38.94, Delta Air Lines has advanced 1.7% to $38.50, Southwest Airlines has jumped 2.1% to $25.12 and Alaska Air Group is up 1.7% at $97.23.

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