Investing in airlines has long been the butt of jokes, especially when many U.S. carriers traipsed through bankruptcy court in the past decade.
Now riding a post-merger tide of higher fares and stable fuel costs, those same airlines are piling up profits — and sharing the newfound riches with investors.
American Airlines announced Thursday that it would pay its first dividend in 34 years, and both American and United Airlines announced big plans to buy back their own stock, a strategy designed to boost the value of remaining shares.
Those announcements came as American, United and Southwest reported record-setting second-quarter results, building on Delta's solid performance a day earlier.
Airlines are prospering as mergers have reduced competition, making it easier to keep prices high and raise billions from extra fees. They used bankruptcy to squeeze costs from employees and suppliers such as the smaller carriers that operate regional flights. They have benefited from stable fuel prices.
American Airlines Group Inc., the world's biggest airline company since American's December merger with US Airways, said it will pay its first dividend since 1980, a cash payout of 10 cents per share, which could cost nearly $300 million a year.
"It is hard to believe that less than eight months ago, American was in bankruptcy yet today we are reporting record profits, prepaying debt, making additional pension contributions and declaring dividends to shareholders," CEO Doug Parker said in a letter to employees.
Dividends are common in many other industries, but few airlines pay them. Southwest has been paying a dividend for more than 37 years and boosted it by 50 percent this spring. Delta Air Lines restored its dividend last year.
American also said it will spend up to $1 billion to buy back shares through the end of 2015, and United announced a similar $1 billion program to stretch over three years. They joined Southwest and Delta, which already buy back their own shares.
Fitch Ratings said the buybacks could pose a risk to airlines' improving creditworthiness if the companies stop focusing on reducing debt and holding large cash reserves. Fitch said it was surprised by the size of American's buyback plan, but it was reassured by the company's actions to prepay debt and buy out some aircraft leases.
The latest moves came as American reported net income of $864 million in the second quarter. Excluding special charges related to taxes and bankruptcy and merger costs, the profit was $1.5 billion, a quarterly record for American. At $1.98 per share, it beat analysts' forecast of $1.95 per share, according to FactSet. Revenue rose 10.2 percent as passengers paid 6.5 percent more per mile for their tickets.
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