The increase, which was matched by other carriers, is Southwest’s fourth broad-based increase this year, following five such increases in 2005, JP Morgan analyst Jamie Baker told investors. One of those was a $10 increase in March, which was, at the time, the largest one-time increase for an airline that usually confines its price hikes to a few dollars, he noted.

Furthermore, Baker said he expects Southwest’s “full court press for higher fares” to “continue for many years” unless there is a steep decline in fuel prices.

Southwest hedged -- effectively pre-purchased -- 85% of its fuel in 2005 at $26 a barrel for crude. This year, the figure is down to 70% at $36 a barrel for crude.

That’s still quite an advantage when compared to the current market price for crude, which is above $70 and topped $75 at one point this week. Nonetheless, Southwest’s advantage is less than it used to be and will be even less so in future years, largely because there’s a limit to how far in advance a hedge can be.

Currently, Southwest is 60% hedged at $39 for 2007, 35% in 2008 at $38 and 30% in 2009 at $39. Southwest plans to add to those hedges, but the pricing won’t be as favorable and it has said it is preparing to bear a bigger brunt of the fuel price increases, especially in 2010.

Other airlines benefit when Southwest, a low-fare price-setter, raises it prices, because they can raise their lowest prices, too. But Baker said it is Alaska and US Airways that will benefit the most, because each of them generate about a third of their revenue in markets where Southwest determines pricing.


Source: Travel Weekly