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United Airlines Looks to Future Dividend Payout

Tickers in this article: DAL UAL
New York (TheStreet) -- United Chief Financial Officer John Rainey implied Monday that the carrier is looking to pay a dividend, although he didn't commit to a date.
Speaking at a JPMorgan investor conference, Rainey answered an analyst's questions regarding a 2015 return of capital to shareholders by saying "we're not going to pre-announce," before noting that a dividend payout has two prerequisites.

First, "we need to achieve the level of earnings we've laid out that will support that," Rainey said.

Secondly, he referred to a section of his presentation which showed that United has paid off $9 billion in debt since 2009, and has debt maturities of $5.4 billion from 2014 through 2017. The highest maturity level, which comes in 2015, totals about $2 billion, including about $900 million in non-aircraft debt. "We'd like to take that off the table this year," Rainey said, referring to the non-aircraft debt. "That will allow us to have more balance going forward."

During his presentation, Rainey noted that United expects cost per available seat mile excluding fuel to grow by just 1% to 2% in 2014, down from 6.3% growth in 2013 and the lowest CASM growth in at least five years.

United has a plan to reduce costs by $2 billion by 2017. Rainey said he has seen many cost-cutting plans during his career and "none of these have been sustainable." But he has high hopes this time.

The plan includes $1 billion in fuel savings driven by new aircraft, engineering upgrades and improved operations. Another $500 million would result from productivity increases enabled by technology including self-service kiosks.

United, meanwhile, is growing ancillary revenue, expected to total $3 billion in 2014 and $3.5 billion by 2017. Ancillary revenue has been growing at a 7% annual rate since 2010, when it totaled $2.2 billion.

JPMorgan analyst Jamie Baker wrote in January that the other major carriers will likely follow Delta's  decision in May 2013 to pay a dividend. He forecast then that American , which began the year with $10.3 billion in cash, would pay a dividend in 2016.

"It seems to us that UAL is basically following the DAL playbook with a two-year lag or so in terms of capital redeployment," Baker wrote in a report issued Jan. 15. "However, we don't think AAL will wait until 2017 to redeploy some of this excess liquidity."

In mid-morning trading, United shares were down 32 cents to $47.43. Shares are up about 25% this year after rising 58% in 2013.

Besides Delta,  Alaska and Southwest pay dividends.

Written by Ted Reed in Charlotte, N.C.

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