Southwest shares story updated news of stock buyback.

DALLAS ( TheStreet) -- Southwest ( LUV - Get Report) announced a stock buyback Friday, as shares headed down due to reduced estimates and a minimal increase in July unit revenue.

The carrier said it would buy back up to $500 million of its stock, which was trading at levels last seen in November 2009. In 2008 the carrier also authorized a $500 million buyback program, which was suspended after share purchases of $54 million.

At Friday's close, shares were down 36 cents at $8.48. On Thursday, Southwest reported earnings and said it would not grow and could even shrink in 2012, as CEO Gary Kelly cited "the pessimistic near-term outlook for fuel prices and the U.S. economy" in prepared remarks.

In reports issued Friday, Deutsche Bank analyst Michael Linenberg lowered his 2011 estimate to 45 cents from 71 cents, and Dahlman Rose analyst Helane Becker reduced her estimate to 48 cents from 63 cents. Analysts surveyed by Thomson Reuters had been estimating 59 cents.

Linenberg said his new target came in order "to incorporate a more reasonable pace of achieving merger synergies," following the May 2 close of the AirTran merger, while Becker said she was reacting to "lower-than-expected 2Q11 results due to LUV's inability to raise fares enough to cover the 41.6% increase in jet fuel expenses."

Also Friday, Southwest reported that July passenger revenue per available seat mile increased by a scant 1% over the same month a year earlier.

Despite his diminished outlook, Linenberg retained a buy on Southwest, saying he expects merger synergies to start to accrue in 2012, when he expects operating margin to grow by 2.2 points "as a result of a more robust network." He said the reduced growth expectations also support a higher share price.

Southwest missed second-quarter estimates, but Linenberg as well as J.P. Morgan analyst Jamie Baker said that "noise" associated with analysts said the picture was clouded by the AirTran merger. The quarter was the first one to incorporate merger results.

Southwest was the biggest loser in the sector on Friday. Winners were Hawaiian ( HA - Get Report), up 6 cents to $4.26 near the close, and Spirit ( SAVE - Get Report), up 4 cents to $12.65.

-- Written by Ted Reed in Charlotte, N.C.

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