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.
Those announcements came as American, United and
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.
"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
Dividends are common in many other industries, but few airlines pay them.
American also said it will spend up to
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
United has struggled with technology glitches and other issues that have left it behind other airlines in key revenue ratios, but second-quarter revenue rose 3.3 percent to
"Demand is very strong, and it is balanced very nicely with the supply of seats," Kelly said on a conference call with reporters. "We're going to manage our growth very carefully so that we don't upset that balance."
Kelly said his biggest worries about the demand-supply balance centered on the economy or events in the
Airline stocks have surged in the past two years but have also had down days recently due to concern about growth in capacity on lucrative international routes.
In afternoon trading, shares of
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