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Airline stocks rise on fare hikes to offset fuel

Source : AP
Last Updated: Mon, Aug 20, 2012 22:45 hrs

Shares of U.S. airlines gained Monday following a successful attempt to raise fares to cover the rising cost of fuel.

Southwest Airlines Co. raised fares Friday on short routes by $10 per round trip, and several large airlines quickly matched the increase. The fare hike applied to flights of less than 500 miles each way, or about one-third of Southwest's routes.

Just two days earlier, Delta Air Lines dropped a fare increase of up to $10 per round trip on certain last-minute ticket purchases because other airlines didn't follow suit.

Southwest carries a lot of influence in fare sales because while other airlines fly more miles, Southwest carries more passengers within the U.S. than anyone. It's also the largest discount carrier by far, so it can easily impact the decisions of its competitors. Many attempts to raise prices don't stick because Southwest doesn't play along.

Including the latest fare increase, JP Morgan analyst Jaime Baker said the airlines have been successful in four out of eight attempts this year.

And he expects the airlines to keep trying. That's because costs for fuel are going up. Also, reductions in flying are giving the airlines more of an upper hand to hike fares because there are fewer available seats to match demand.

Investors were also likely spurred to buy because of a flurry of stock purchases by top executives at United and Delta, signaling that insiders view the stocks as a good value and see room to grow.

Southwest shares rose 3.4 percent, or 31 cents, to close at $9.44 Monday. United Airlines parent United Continental Holdings Inc. rose 5.7 percent, or $1.05, to $19.45. Delta gained 3.6 percent, or 33 cents, to reach $9.46.

US Airways Group Inc. rose 5 percent, or 51 cents, to $10.59. The Association of Professional Flight Attendants said Sunday that the best course for American Airlines is a merger with US Airways, after the union announced that American flight attendants approved a contract with their airline that includes a number of concessions. US Airways has been pushing for a merger with AMR Corp., the parent company of American Airlines, for months.




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