Shares of airline companies in the United States extended their rally on Tuesday after solid rally in Monday's session following a rise in airfares to offset rise in fuel costs.
Southwest Airlines Co.(NYSE:LUV) kicked off the fare hikes on Friday and several large airlines followed suit. The hike was about $10 dollars for a round trip.
Southwest usually sets the benchmark for fares in the U.S. since it carries more passengers than other airlines, which fly more miles.
It's also the largest discount carrier and wields a lot of influence in setting the fares in the industry. Sometimes fare hikes by other airlines don’t work because Southwest doesn’t follow it. Delta Air Lines, Inc.(NYSE:DAL), for instance, that had attempted a fare hike by $10 a couple of days back had to reverse it because the other airlines, including Southwest did not follow suit.
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Airlines have been successful in raising fares four out of eight attempts this year.
JP Morgan analyst Jaime Baker said he expected the airlines to keep on trying as costs for fuel are going up.
"Also, reductions in flying are giving the airlines more of an upper hand to hike fares because there are fewer available seats to match demand."
Airline stocks have become an attractive option now and the interest of investors have been boosted by flurry of stock purchases by top executives at United Continental Holdings Inc(NYSE:UAL) and Delta, signalling that insiders view the stocks as a good value and see room to grow.
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Shares of LUV are up 0.50% after surging 3.4 % in the prior session. Shares of DAL also climbed up 3.40% to $9.78 followed by a 3.60% rise in the previous trading session. Shares of UAL and US Airways Group, Inc.(NYSE:LCC) surged 1.50% and 7.20% respectively.