US airline undervaluation creates an opportunity for buybacks to boost shareholder returns

As investors in US airlines struggle to understand the dynamics of profits driven by lower fuel costs versus net income fuelled by unit revenue growth, some of the large airlines are taking the opportunity to increase shareholder returns by repurchasing shares they conclude are underpriced.

The four largest US airlines have expanded their share repurchase programmes in 2015 and some of those companies have also opted to increase their dividends. Shareholder returns by US airlines are no doubt reaching historical levels, which is creating questions about how far the rewards can go.

Stock prices of the four largest US airlines continue to trade below their yearly high points. The perceived undervaluation by management teams could create further opportunities for buybacks in order for airlines to deliver on their promises of sustained shareholder returns.