ATLANTA – United Continental Holdings plans a $3 billion buyback, the airline’s biggest ever, as the largest U.S. carriers accelerate repurchases amid a slump in share prices.
The new program will be completed by the end of 2017, United said Thursday, minutes after Southwest Airlines Co. announced it would speed up the purchase of $500 million in stock under a $1.5 billion effort authorized in May.
United, the world’s second-biggest carrier, followed the $5 billion plan unveiled in May by Delta Air Lines and a $2 billion expansion at American Airlines Group in January. While the industry is benefiting from lower jet-fuel prices, investors have soured on the stocks because fares are under pressure.
Southwest didn’t give a timetable for completing what it described as the “accelerated” repurchases. When completed, the buyback would bring the airline’s total this year to $1.2 billion.
United, formed in 2010 by the merger of former parent UAL Corp. with Continental Airlines, announced a $1 billion repurchase program in July 2014. The new plan outstrips that initiative as well as the total of $1.05 billion in buybacks announced by UAL in the 1990s, according to data compiled by Bloomberg.
The Chicago-based airline announced its stock-purchase plan while reporting a second-quarter profit of $1.3 billion, or $3.31 a share. The per-share result matched the average of 16 analyst estimates compiled by Bloomberg. Sales were $9.91 billion.
The drop in oil helped lower United’s fuel bill by $1 billion in the second quarter and sent unit costs down 12 percent. That more than offset weak unit revenue, a closely watched measurement that investors see as an indicator of future profits. That gauge fell 5.6 percent in the quarter.
The company forecast total consolidated capacity growth to be 1 percent to 1.5 percent for 2015.
Michael Derchin, an analyst with CRT Capital Group, said United’s shares rose because investors felt the positives outweighed the negatives.
“I think its a combination of the buybacks, certainly $3 billion’s three times greater than the previous buyback,” Derchin said. “Secondly it’s the system capacity growth this year. One to 1.5 percent is kind of modest, and obviously the market likes modest capacity growth.”
Southwest jumped the most in almost five years in intraday trading, buoyed in part by a projected $400 million second-half sales boost from a renewed credit-card agreement with JPMorgan Chase &Co.
After soaring 81 percent last year, the Bloomberg U.S. Airlines Index has lagged behind domestic equity benchmarks in 2015. The gauge of 11 carriers slid 11 percent through Wednesday while the Standard &Poor’s 500 Index advanced 2.7 percent.
At Southwest, lower jet fuel prices and increased passenger traffic pushed its profit to $691 million, or $1.03 a share, exceeding the average analysts’ estimate of $1.01. Sales of $5.11 billion fell short of the $5.14 billion expected by analysts.
Southwest’s unit revenue will decline about 1 percent this quarter from a year ago. That measure fell 4.7 percent in the second quarter, within Southwest’s forecast of a 4 percent to 5 percent drop.
“It feels like things are beginning to turn around,” Chief Executive Officer Gary Kelly said in an interview. “I do think we’ll see some improving comparisons.”
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