Airline investors have been well rewarded in 2013 by the hard work undertaken by airline management teams over the last three years to position the industry for long-term profitability. Airline executives have by and large done a good job containing unit cost growth and growing unit revenues in the face of skyrocketing fuel prices, boosting financial returns.
With a more stable financial outlook, many airlines have started to think about returning some cash to their long-suffering shareholders. On Thursday, Alaska Air Group, Inc. (NYSE:ALK) became the latest airline to initiate a regular dividend. It will make its first dividend payment of $0.20 per share on August 22.
This decision provides further evidence that the company’s management team is committed to returning excess cash to shareholders and keeping capex disciplined. It also demonstrates their confidence that Alaska Air Group, Inc. (NYSE:ALK) will remain consistently profitable, as it has been since 2010.
Three airline dividend leaders
The only airline to maintain a dividend throughout the Great Recession was Southwest Airlines Co. (NYSE:LUV), which has consistently had one of the best balance sheets in the industry. But, for many years, Southwest Airlines Co. (NYSE:LUV)‘s quarterly dividend was a paltry $0.01 per share, which left the company’s yield below 0.5%.
In the past year, Delta Air Lines, Inc. (NYSE:DAL) has really led the charge in terms of returning cash to shareholders more aggressively. The company told investors late last year that its board of directors was evaluating ways to return cash to shareholders and expected to have a decision by mid-2013. In May, Delta Air Lines, Inc. (NYSE:DAL) announced that it was beginning a $0.06 per share quarterly dividend and a $500 million share repurchase program.
Based on Delta Air Lines, Inc. (NYSE:DAL)’s share price before the announcement, the dividend yield would have been approximately 1.4%, far outstripping Southwest Airlines Co. (NYSE:LUV)’s dividend. However, Southwest quickly shot back by quadrupling its dividend, giving its investors a comparable yield. After Southwest’s announcement, many investors began to speculate about which airline would be next to initiate a dividend.
In some ways, it’s not very surprising that Alaska Air Group, Inc. (NYSE:ALK) was the third major airline to begin a dividend. The company already had a robust share repurchase program, and has spent more than $370 million to buy back shares since 2006, creating substantial value in the process. Alaska Air Group, Inc. (NYSE:ALK) is also in the middle of a $250 million share repurchase program that it plans to complete by the end of 2014.