U.S. airlines focus on investor returns as industry profits

By Karen Jacobs (Reuters) - Major U.S. airlines posted earnings gains on Thursday, aided by higher airfares and summer demand, and the two largest carriers announced moves to return more cash to investors.

American Airlines Group (O:AAL), the largest by traffic, capped off a strong second quarter by announcing its first cash dividend since 1980 and a share buyback.

United Continental Holdings (N:UAL) also said it would repurchase $1 billion in stock.

The buybacks mark a significant change as the four largest U.S. airlines, all the products of mergers, now focus on capital deployment and raising returns for investors. American's 2013 merger completed a consolidation period that has helped put the U.S. industry on sound financial footing.

"The companies are obviously seeing their fundamentals good enough and improving at a fast enough pace that allows them to" start dividends and buybacks, said Kris Kelley, a research analyst with Janus Capital Group.

Delta Air Lines (N:DAL) resumed a dividend and buyback last year and Southwest Airlines (N:LUV) also pays dividends. Among the smaller carriers, Alaska Air Group (N:ALK) pays a dividend.

"The conversation (around airlines) has definitely changed," Kelley said. "Investors are starting to look at these stocks as actual companies rather than just proxies for the global economy."

American, Alaska Air, Southwest and United had second-quarter profit that topped average analyst estimates, buoyed by price increases and summer demand that helped keep seats full.

United's results showed benefits from cost-cutting, and Southwest said revenue of $5 billion was a quarterly high. American said its net profit of $1.5 billion excluding charges was also a record.

JetBlue Airways (O:JBLU) reported higher quarterly profit as well on Thursday, following strong results from Delta on Wednesday.

"Demand has remained strong and airlines have continued to refine their route networks ... fine-tuning their schedules and the aircraft they fly, and becoming more aggressive in how they manage their seats," said Henry Harteveldt, founder and travel industry analyst at Atmosphere Research Group.

He said airlines were becoming more targeted in how they conduct fare sales, extending promotions to a select group of customers rather than having massive sales across all routes and seats.

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U.S. airlines have better aligned available seats with demand and retired less efficient airplanes to improve operations while charging extra fees for items such as seat upgrades to boost revenue.

The airlines are also keeping a close eye on costs. United has cut staff, while Delta and Allegiant Travel (O:ALGT) said this week they had recently offered voluntary retirement or buyout options in efforts to keep costs down.

Shares of airlines were mixed, with United up 2.8 percent to $47.29 and Southwest up 0.2 percent to $28.94. American and Delta eased less than 1 percent, and Alaska was off 3.9 percent to $47.73.

(Reporting by Karen Jacobs in Atlanta; editing by Gunna Dickson)