By raising its fares alongside Air Canada (TSE:AC.B), WestJet Airlines Ltd. (TSE:WJA) is showing here that it will not undercut prices on every route, and that it will still seek to maximize revenues when situations permit. I would view this as a positive for Air Canada (TSE:AC.B), since it gives the carrier more latitude to raise fares.
I also can see benefits for WestJet Airlines Ltd. (TSE:WJA). By getting in on this model, WestJet Airlines Ltd. (TSE:WJA) remains competitive with other carriers, but sets itself up to continue generating strong earnings as its workforce ages and its cost advantage decreases.
American Airlines/US Airways Group Inc (NYSE:LCC)
By now, day-to-day aviation industry followers know that these two airlines are in a legal battle to join together and form the world’s largest airline. Outside of the courtroom, negotiations are probably going to happen sooner or later between the airlines and the Department of Justice, which will hopefully allow the merger to move forward.
Since the DOJ’s arguing that a lack of competition in the industry will lead to higher future prices, American and US Airways Group Inc (NYSE:LCC) are naturally hesitant to raise fares for fear of reinforcing the DOJ’s argument. This may partly explain why previous fare increases failed, since these two major carriers have been unwilling to follow along. However, American and US Airways Group Inc (NYSE:LCC) matched this latest fare increase on transborder routes, making it more likely to stick than previous attempts.
It’s questionable how the DOJ will react to this fare increase with regard to merger negotiations. I can only speculate that the carriers must have examined the situation very carefully before following the fare increase, and concluded that it would not have a major impact.
Higher fares
IThe latest fare matching on transborder routes shows that fares increases are still able to gain traction among multiple major carriers.
For this particular increase, Air Canada and WestJet are the biggest beneficiaries, since they have a greater reliance on these routes than the four U.S. legacy carriers. However, I see this as a bullish development for the industry as a whole, and maintain a positive outlook on airline shares in general.
The article What Fare Hikes Mean for These Airlines originally appeared on Fool.com is written by Alexander MacLennan.
Alexander MacLennan owns shares of Air Canada, American Airlines, Delta Air Lines, and Gol Linhas. He is also long the following options: $22 January 2015 Delta calls, $25 January 2015 Delta calls, $30 January 2015 Delta calls, $17 January 2015 US Airways calls. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned.
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