Delta Air Lines to return over $6 bn to investors through share buybacks

14 May 2015

Delta Air Lines plans to return over $6 billion to investors through share buybacks and dividends by the end of 2017, and hiked its target for operating profit margin.

Yesterday, the Atlanta-based carrier promised to return at least 50 per cent of its free cash to stockholders via a new $5 billion share repurchase programme, and by increasing its dividend to 13.5 cents per share from 9 cents, beginning in the third quarter.

According to the carrier, it was targeting an operating margin of 14 to 16 per cent through 2017, up from earlier goals of 11 to 14 per cent.

According to its estimate, earnings per share are expected to increase over 15 per cent over the same period, up from a target of 10 to 15 per cent growth.

Profits at US airlines in recent years have risen from new passenger fees and measures to fly fuller planes. The sharply declining price of oil since June had added hundreds of millions of dollars more to carriers' bottom lines, with fuel often representing a third or more of their operating expenses.

Southwest Airlines Co too yesterday announced a $1.5-billion share buyback programme and hiked its quarterly dividend by 25 per cent.

According to commentators, other carriers might be forced to follow suit.

After a $58-billion run of losses last decade, airlines over the past three years had once again started returning money to investors.

In 2014 Major US carriers reported record profits helped by low fuel costs, while this year Delta projected it would save $2.2 billion on fuel.

According to Helane Becker, a Cowen & Co analyst, airlines were trying to make the case that they could earn money even when the economy stumbled, and their shares should be valued like high-quality industrial companies, Bloomberg reported.

Becker who attended a Delta meeting with analysts yesterday, said that was definitely the message that came out this morning. The carriers might not make as much money in a downturn as in an upturn, but their focus was to be profitable throughout the cycle.

According to Andrew Davis, a transportation analyst at T Rowe Price in Baltimore, United Continental Holdings Inc and American Airlines Group Inc might make similar buybacks later this year Bloomberg reported.

repurchases signaled that airlines were evolving and becoming more consistently profitable he said.