United Sets $3 Billion Buyback as Airlines Speed Repurchases

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United Continental Holdings Inc. joined its largest U.S. airline peers in planning to repurchase stock, using a record $3 billion buyback to compensate investors for a slumping share price.

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 commitment unveiled in May by Delta Air Lines Inc. and a $2 billion expansion at American Airlines Group Inc. 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 finishing 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 Inc., set a $1 billion repurchase program in July 2014. The new plan outstrips that initiative and the total of $1.05 billion in buybacks announced by UAL in the 1990s, according to data compiled by Bloomberg.

Second-Quarter Profit

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.

United fell 0.7 percent to $56.67, reversing an earlier rally. The shares have fallen 15 percent this year following 2014’s 77 percent surge. Southwest rose 3.9 percent to $36.48, buoyed in part by a projected $400 million second-half sales boost from a renewed credit-card agreement with JPMorgan Chase & Co.

Index Struggles

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 have slumped 9.9 percent while the Standard & Poor’s 500 Index advanced 2.1 percent.

Lower jet-fuel prices and rising passenger traffic pushed Southwest’s profit to $691 million, or $1.03 a share, exceeding analysts’ average estimate of $1.01. Sales of $5.11 billion fell short of the $5.14 billion expected by analysts.

Unit revenue will decline about 1 percent this quarter from a year earlier, Southwest said. 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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