Market Overview

Airfare Hikes Only a Band-Aid for Southwest


Southwest Airlines (NYSE: LUV) successfully hiked airfares $5 on "flights of less than 500 miles each way, or about one-third of Southwest's routes." Southwest cited operating costs for the hike, presumably due to cost of jet fuel, but the real focus should not be on the cause of the hike, but rather the effect.

While airfare prices have gone up for Southwest, stock prices failed to exhibit the same behavior. Over the last 90 days, LUV has been going through a rollercoaster ride floating just above $9, closing Thursday at $9.11

History has shown that a sucessful airfare hike has been a domino effect -- when one airline's prices goes up, the rest tend to follow suit. Competitor airlines stocks haven't faired any better over the last 3 months either. United Continental Holdings (NYSE: UAL) traded about 12.02 percent lower around $20.09, while Delta Airlines (NYSE: DAL) was down 8.16 percent at $9.45. US Airways' (NYSE: LCC) share price took a more modest tumble to $11.25 or 6.02 percent.

While these price hikes can temporarily boost stock price through fleeting revune increases, it decreases demand and takes a toll on prices in the long run. When consumers are given the alternative or driving as opposed to traveling by air, the bottom line will be total cost.

Posted-In: News Guidance Movers Trading Ideas


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