American Airlines Group Inc. doubled its buyback program to $4 billion, taking advantage of record earnings and sagging share prices to expand on a plan announced just six months ago.
The plan runs to the end of 2016, American said Friday as it announced a second-quarter profit that beat analysts’ estimates. Chief Executive Officer Doug Parker said he was “really bullish on the future, really bullish on the stock.”
American joins United Continental Holdings Inc., Delta Air Lines Inc. and Southwest Airlines Co. in starting or increasing buybacks this year, with combined repurchase authority of $13.5 billion. The U.S. industry is benefiting from tumbling fuel costs while also facing doubts from investors because fares have been under pressure from rising competition.
“The buyback activity in the quarter was pretty strong, and the $2 billion addition was a positive,” said Joe DeNardi, a Stifel Financial Corp. analyst who recommends buying American. “The timing isn’t a huge surprise, but it’s a pretty positive data point.”
Less positive: American said unit revenue, a closely watched indicator that’s viewed as a clue to future profit, would fall 6 percent to 8 percent this quarter.
American fell 2 percent, reversing an earlier gain, to $41.75 at 10:30 a.m. in New York. The shares slid 21 percent in 2015 through Thursday, reversing the 72 percent surge from the same period last year. That pullback is part of an industrywide stock slump on concern that earnings may have peaked -- a view that Parker disputed on Friday.
“By no means does this feel to me like a peak,” Parker said on a conference call. “It certainly doesn’t feel like the beginning of a continued decline in margins. I sure don’t feel that way.”
Quarterly profit excluding some items rose 27 percent to a record $1.9 billion, or $2.62 a share, American said. That topped the $2.60 average of 16 analysts’ estimates compiled by Bloomberg. Sales slipped 4.6 percent to $10.8 billion.
Unit revenue, or passenger revenue from each seat flown a mile, fell 6.9 percent last quarter, within American’s estimated range of a 6 percent to 8 percent drop.
The decline in total revenue wasn’t unexpected given competition from discounters like Southwest, pricing pressure in international markets and sagging travel demand from the energy industry, according to a note to investors from Helane Becker, a Cowen & Co. analyst.
American moved earlier this month to counter slumping domestic ticket prices by trimming planned growth in 2015 U.S. seating capacity to a range of 1 percent to 2 percent from as much as 3 percent originally. The change will pare global expansion to 1 percent, down from an already-lowered April outlook of 2 percent.
Airlines have been struggling to raise fares because the supply of available seats -- boosted in part by discounters led by Spirit Airlines Inc. -- is expanding faster than travel demand.
Delta and United also have slowed increases in the supply of available seats for the rest of this year. Average domestic fares have fallen 8 percent from a June 2014 high, according to data compiled by Bloomberg.
As the largest U.S. carrier to South America, Fort Worth, Texas-based American also has been battered by weak demand there and by currency fluctuations in Venezuela and Brazil.