(Reuters) - Delta Air Lines Inc (DAL.N) plans to return $1 billion to shareholders over the next three years, starting with its first dividend in a decade and a $500 million share buyback program, the company said on Wednesday.
The initiatives are part of a five-year plan that seeks to generate as much as $5 billion in value for investors, the carrier said in a statement.
The move shows that airlines, which weathered a tough decade after the September 11, 2001, attacks, have gained more solid financial footing and are now focusing on improving their investment potential [ID:nL1N0BS0W2].
"With the Delta announcement here, it's going to signal that the industry has indeed changed," said Chris Terry, an analyst with Hodges Capital Management in Dallas. "Profitability seems sustainable, and I think it's just going to open up the industry to more investors."
U.S. carriers have merged, stopped flying money-losing routes and created new revenue streams with baggage and food fees to restore profitability. Fare increases have also helped improve revenue and earnings.
Terry said he expects other airlines to unveil plans to boost shareholder value as they reach return-on-capital goals. "The timing on that is probably the biggest question," he said.
Delta declared a quarterly dividend of 6 cents a share, to be paid September 10 to shareholders of record August 9. Its board also approved a share repurchase program of $500 million, due to be completed by June 30, 2016.
Shares of Delta were up 2 percent to $18.44 in morning trading, and other major airlines also rose.
United Continental Holdings (UAL.N), the current industry leader, was up 1 percent to $33.73 and US Airways Group LCC.N, which plans to acquire AMR's Corp AAMRQ.PK American Airlines, gained 1.6 percent to $17.25.
Delta, which filed for bankruptcy in 2005 and acquired Northwest Airlines in 2008, has improved profits and reduced debt in recent years. It last paid a common stock dividend in 2003, and its last share buyback plan was in 2000.
To cut costs, Delta has been retiring fuel-guzzling planes and bought an oil refinery last year. It is also launching partnerships with non-U.S. airlines to position itself to win new customers, and has expanded flights in lucrative markets such as New York.
The carrier said last year that it would outline a capital deployment strategy in the first half of 2013.
"We think this move highlights how Delta has somewhat reduced risk in the historical boom and bust airline industry, which we think is attracting increased investor interest," S&P Capital IQ equity analyst Jim Corridore said in a note to clients.
Delta also said it would contribute as much as $1 billion to its pension plans in the next five years, on top of the required minimum annual contribution of $650 million to $700 million.
Reporting by Karen Jacobs in Atlanta; Additional reporting by Tej Sapru in Bangalore; Editing by John Wallace