The airline industry has been rebounding from its lows of 2007 and 2008. Higher consumer sentiment readings have propelled stronger passenger traffic in most carriers. Revenues are strong and airlines are showing outstanding growth. Hence, investors should pick the airlines that have the highest probabilities of bringing capital appreciation for growth portfolios.
Dividends and Share Repurchases
Alaska Air Group, Inc. (NYSE:ALK), Delta Air Lines, Inc. (NYSE:DAL) and Southwest Airlines Co. (NYSE:LUV) bring capital appreciation to their investors in the form of dividends. It is not usual for airlines to offer dividend payments. However, these companies are in the best positions to do it.
Alaska Air Group finished the last quarter with a 10% increase in cash from operations to $212 million, and its free cash flow increased from $85 million to $109 million. Furthermore, revenues rose by 10% to $1.1 billion.
Delta Air Lines, Inc. (NYSE:DAL) finished the quarter with increasing cash from operations from $831 million to $1.0 billion. Further, its free cash flow ended at $357 million, from $424 million a year ago. The contraction reflects the dividend payment, which was instated in the previous quarter. Its revenues remained unchanged at $8.5 billion.
Southwest Airlines Co. (NYSE:LUV)’s cash from operations declined from $1.2 billion to $983 million. Additionally, its free cash flow contracted from $1.1 billion to $450 million. However, the company spent an enormous amount of cash in its share repurchase program, and the shares outstanding declined from 772 million to 727 million.
Based on these metrics, these airlines should not have issues regarding the dividend payment. Alaska Air Group, Inc. (NYSE:ALK) was the latest who joined the dividend-payment party. The company announced on Thursday the initiation of a dividend offer of $0.20 per share, to all shareholders of record as of August 6. Delta Air Lines, Inc. (NYSE:DAL) announced a $0.06 dividend payment in its press release on May 8. Southwest Airlines Co. (NYSE:LUV) has offered a dividend for more than 36 years. It was recently hiked from $0.01 to $0.04 in May.
What’s more is that these carriers are also bringing capital appreciation through strong share repurchase programs.
In September, Alaska Air Group announced its plan to repurchase $250 million worth of stock. Although the program does not have an expiration date, the company plans to complete it by December 31, 2014.
Delta Air Lines, Inc. (NYSE:DAL), on the other hand, has authorized a $500 million share repurchase program, to be completed no later than June 30, 2016. Southwest Airlines Co. (NYSE:LUV) has expanded its original $1 billion share repurchase program to $1.5 billion.
Overall, these companies will bring value to their investors in the form of dividend and share repurchase programs. Hence, they offer an excellent investment prospectus for any growth-oriented portfolio.
What are the tailwinds for these companies?
Delta Air Lines, Inc. (NYSE:DAL) has inaugurated the Terminal 4 in the JFK International Airport in New York. Thus, its international presence may increase significantly. Long haul flights are important for carriers because they offer the best operational margins per seat. Further, the company is remodeling the Terminal 3 at JFK. With these terminals, the company will expand operations between JFK airport and international destinations. Finally, the company has acquired 49% of Virgin Atlantic Airways, which should expand its operations in the Atlantic region.
Southwest Airlines Co. (NYSE:LUV) is a “regional” carrier with huge presence in the United States. The company offers low-price flight tickets, which is a plus. Hence, the passenger traffic should remain strong for this carrier. As proof, its revenue passenger miles for the month of June increased by 2.3% to 9.8 billion on a year-over-year basis. Its available seat miles, which means the seats available for purchase, increased by 1.7% to 11.5 billion, and its load factor increased 0.6% to 85%. These metrics are outstanding, at least.