United Continental's New Share Buyback Plan Is Less Impressive Than It Seems

Last week, airline giant United Continental (NYSE: UAL) announced that it is on track to complete its current $2 billion share repurchase authorization by the end of this month. The company's board has also authorized a new $3 billion share buyback program.

Share repurchases have become very popular among airlines in recent years, as low fuel prices and a more rational competitive environment have led to higher industry profitability. However, like fellow major airline American Airlines (NASDAQ: AAL), United is spending beyond its means on buybacks. This move could be dangerous for investors in the long run.

United Continental has been actively returning cash to shareholders through share repurchases since 2014. However, it really ramped up its capital return program in 2015, as falling fuel prices caused free cash flow to surge. United spent about $1.2 billion on share buybacks in 2015 and $2.6 billion in 2016. If United completes its current share repurchase authorization by year-end as planned, it will have spent another $1.8 billion on buybacks in 2017.

Source: Fool.com