Delta Air Lines, Inc. (DAL): Airlines Have No Appetite for Fare Hikes

In previous years, rising oil prices have provided an impetus to fare hikes. Since jet fuel is a big cost driver for the airlines, there was usually a consensus within the industry to raise ticket prices along with oil prices. Now, that logic seems to be breaking down. In fact, none of the other major carriers supported United’s fare increase. By contrast, in 2011 and 2012, Southwest Airlines Co. (NYSE:LUV) was the only airline to frequently oppose fare increases.

Foolish conclusion
So what does this failed fare hike mean for the airlines? If oil prices soon retreat, or airlines manage to raise fares within the next few weeks, the impact of this failed fare increase would be minimal. However, if oil prices remain elevated (and especially if they rise further from here), airlines will start to feel pressure on their bottom lines if airfares remain flat.

The stock market has recently become much more accepting of airlines, leading to spectacular gains for airline investors in 2013. However, the major airlines rebuilt their profitability through a consistent policy of raising fares in line with costs. If they are unable to continue doing so, major airlines could see a big drop-off in stock performance.

The article Airlines Have No Appetite for Fare Hikes originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL) and is long September 2013 $33 puts on United Continental Holdings. The Motley Fool recommends Southwest Airlines.

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