This strategic is aimed at boost investor’s value among other measures adopted by United’s board.
United Continental Holdings Inc. has disclosed that it has allocated $2 billion dollars for buying back its shares. The move is the latest attempt by the company’s board to attract more investors and ward off narrowing margins in the fiercely competitive airlines industry.
Despite this announcement, United Continental Holdings’ shares fell by 1% since a key revenue metric showed no sign of improvement in the second quarter.
This stock buyback moves comes in the wake of fresh battle with two activist hedge funds. The $2 billion share buyback amounts to almost 13% of its market value.
Additionally, United has also appointed a 15th member to its board, Edward Philip, in agreement with the activist hedge funds.
Despite these measures, investors appear to have shrugged them off and have instead focused on the gradual decline of passenger revenues. In the second quarter, this metric fell by 6.6% from the comparative previous year figure. United has also forecasted a drop in passenger revenues by 5.5% to 7.5% for the third quarter.
“Demand growth (is) not keeping pace with capacity growth,” said United said in a regulatory filing on Tuesday.
It now aims to sell higher fares and fly fewer empty seats and has forecast a growth of 1.5% for 2016.
Like its competitor, Delta Airlines, United has said it would sell fewer seats from UK. Washington-Manchester flights are set to be seasonal from 2017.
This naturally has happened due to Brexit: with Britain’s historic referendum, the sterling fell to its 31 year low making it more expensive for Britons to travel to the U.S.
“We see industry capacity cuts helping unit revenues in the fall,” said Jim Corridore, an analyst at S&P Global Market Intelligence in a research note.
The third biggest airline by passenger traffic, United Airlines has said its adjusted second quarter profit plummeted by 32% to $863 million partly due to corporate travelers buying cheaper ticket.
Despite this, its results have topped analysts’ average estimate of $2.56 per share, according to Thomson Reuters I/B/E/S.
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