After several attempts in the past few weeks, U.S. air carriers
finally succeeded in raising fares to offset steeper fuel prices.
This time, the low-cost carrier
Southwest Airlines Co.
) led the way for the board-based increase in ticket prices.
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The company raised fares by $10 per round trip on short routes that
cover less than 500 miles. The increased prices will apply to about
one-third of Southwest's flights.
Following Southwest's announcement, other major airlines such as
Delta Air Lines
United Continental Holdings Inc
US Airways Group Inc.
) joined the league.
As a result, shares of United Continental gained about 5.71%
followed by a 5.06% rise in US Airways' share price. Southwest and
Delta share prices rose about 3.40% and 3.61%, respectively.
This is the eight attempt this year to increase domestic airfares.
Only four have been successful so far. We believe rising fares
would boost passenger revenue per available seat miles for these
carriers, as they are also reducing their flying capacities in
unprofitable markets. Hence, passengers have less choice and have
to pay more to travel.
Additionally, the efficient use of fuel-hedging strategies would
help carriers to combat rising fuel prices. Apart from cutting
capacity, air carriers are adding novel features to their services
and introducing new products. Such measures are also boosting
revenue growth and reducing non-fuel costs, thereby driving future
We are maintaining our long-term Neutral recommendation on United
Continental, Delta and Southwest with the Zacks # 3 (Hold) Rank.
For the short term (1-3 months), US Airways also retains the Zacks
# 3 (Hold) Rank.