Southwest Raises Fares, Others Follow

March 13, 2006

Bookmark and Share

Southwest Airlines raised its air fares by up to USD$10 for a one-way ticket, seeking to offset USD$600 million in estimated additional fuel costs this year, a spokesman said on Monday.

Other big airlines, including Continental Airlines, Northwest Airlines, US Airways, Delta Air Lines, American Airlines, and United Airlines followed Southwest's fare increase, which occurred late on Friday.

Alaska Air said it increased fares for transcontinental flights USD$10 each way over the weekend, though it said the move was not a direct match of Southwest's.

It was the second fare boost this year for Southwest, which has made a name for itself as a low-fare carrier but faces a growing cost burden as it enjoys less protection from contracts that protect it from higher fuel costs.

"There comes a point where you have to be realistic," said Southwest spokesman Ed Stewart. "Even the most savvy of analysts would agree that fuel is something we just have to keep an eye on."

The fare increases ranged from USD$2 for short-haul flights to USD$10 for "walk-up" unrestricted fares, boosting the price for the latter above a USD$299 cap Southwest had had in place since 2002, Stewart said.

Southwest's hedges have provided a shield against high fuel prices that have allowed it to be profitable even while raising fares only moderately. Its fare restraint has acted as a brake on rival airlines.

Those hedges are gradually expiring, though, increasing pressure on Southwest to raise revenues and cut costs.

"Southwest is a carrier flying into significant cost headwinds," JP Morgan analyst Jamie Baker said in a research note that broke the news of the increase. "Each year its fuel hedges roll ever higher, and its labor costs are swimming upstream against a steady downward industry current."

Baker said the increase was the largest Southwest had ever taken and that its push to raise fares bodes well for industry profitability overall.