Southwest again takes lead in hiking fares

Air carriers continue to raise prices, pointing to higher fuel costs.

By InvestorPlace Sep 14, 2012 11:45AM
parked airplane copyright Sava Alexandru, Vetta, Getty ImagesBy Alyssa Oursler

iplogoAirlines continue to play follow the leader on fare pricing, and Southwest (LUV) has no problem taking control of the trend.

The company is leading the way for the latest attempted price hike, initiating a $5 increase each way on about 10% of its routes, and United Continental's (UAL) United Airlines has already taken the hint.

United didn't just follow in Southwest's footsteps; it actually raced ahead by expanding the hike to just about all domestic routes, possibly as a way of encouraging other airlines to do the same.

Other big names, though, including U.S. Airways (LCC) and American (which are still moving closer to a merger), Delta Air Lines (DAL), JetBlue Airways (JBLU) and Virgin America raised fares only in select markets.

Airlines have been hiking their prices for the some time now, mostly to offset rising fuel costs and the higher operating costs that come with them.

The industry made 22 attempts to raise fares last year and has already made 13 more so far this year. Nine were successful in 2011, and if this increase goes as planned, six will have gone through in 2012.

Airlines have tried other ways to adjust for rising fuel prices in the past months. Delta Air Lines, for example, cut back its capacity in spring.

Still, with gas prices continuing to mount because of drought and hurricane pressures, many airlines may feel they have no other choice.

Or, of course, there's the theory that it's simply a good time for hiking fares, since business travelers pick up their flying between September and February, according to USA Today.

Either way, the move to raise prices has been working. Southwest grew profits and topped analyst forecasts in the most recent quarter -- and not because the carrier had more passengers. Those numbers remained flat, while prices jumped an average of 5%.

Investors have shrugged off the news. Now it's a matter of seeing whether passengers will shrug off the even higher prices.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

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