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Airlines report big 2Q profits on strong demand

By WTOP Staff

The Associated Press

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.

American Airlines announced Thursday that it would pay its first dividend in 34 years, and both American and United Airlines announced big plans to buy back their own stock, a strategy designed to boost the value of remaining shares.

Those announcements came as American, United and Southwest reported record-setting second-quarter results, building on Delta’s solid performance a day earlier.

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.

American Airlines Group Inc., the world’s biggest airline company since American’s December merger with US Airways, said it will pay its first dividend since 1980, a cash payout of 10 cents per share, which could cost nearly $300 million a year.

“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 Doug Parker said in a letter to employees.

Dividends are common in many other industries, but few airlines pay them. Southwest has been paying a dividend for more than 37 years and boosted it by 50 percent this spring. Delta Air Lines restored its dividend last year.

American also said it will spend up to $1 billion to buy back shares through the end of 2015, and United announced a similar $1 billion program to stretch over three years. They joined Southwest and Delta, which already buy back their own shares.

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 $864 million in the second quarter. Excluding special charges related to taxes and bankruptcy and merger costs, the profit was $1.5 billion, a quarterly record for American. At $1.98 per share, it beat analysts’ forecast of $1.95 per share, according to FactSet. Revenue rose 10.2 percent as passengers paid 6.5 percent more per mile for their tickets.

United Continental Holdings Inc., created by a 2010 merger of two airlines that had both gone through bankruptcy, reported net income of $789 million in the second quarter, topping Wall Street expectations and marking a turnaround from the first quarter, when it lost $609 million and canceled 35,000 flights.

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 $10.33 billion, slightly higher than Wall Street forecasts, partly due to higher “ancillary revenue” from extra fees.

Southwest Airlines Co. reported a record second-quarter profit of $465 million and set records for full planes and passenger fare per mile. Revenue rose 8 percent.

CEO Gary Kelly said that bookings were strong in July, with passengers paying about 3 percent more per mile than in July 2013. The company expects to grow through international flying that it picked up with the 2011 acquisition of AirTran Airways and expansion in Dallas, where a federal law that limited its flights expires in October.

“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 Middle East causing a spike in jet fuel prices.

JetBlue Airways Corp. said earnings jumped six-fold to $230 million. Revenue grew 12 percent.

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 American Airlines fell $1.03 to $42.30; United lost $1.18 to $44.82; Southwest slipped 36 cents to $28.51; Delta Air Lines Inc. fell $1.09 to $38.06; and JetBlue fell 20 cents to $11.08.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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