AAL, DAL and LUV: Airline Stocks Soar on Rate Hike

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American Airlines (AAL), Delta Air Lines (DAL), and Southwest Airlines (LUV) are just a few of the big names buoying airline stocks today. Shares of these airline stocks were up between 3% and 7% in morning trading.

aal stock dal luv airline stocks price increaseThe bullishness comes on the heels of a Monday evening report from the Associated Press claiming that most of the major carriers boosted their domestic fares by about $4 per round trip last week. It always pays to be part of an oligopoly.

Oligopolies, Ebola, and Oil — Oh, My!

The airline industry, much like oil companies, the telecom space, and the tobacco industry, is highly oligopolistic. In other words, there are only so many companies in the area that can participate and compete. Oligopolies are incentivized to price-fix — especially when demand is less “elastic,” or price-sensitive — so consumers are forced to pony up more dough wherever they turn.

I’m not saying that airline stocks like AAL, United Airlines (UAL) and JetBlue (JBLU) engaged in price-fixing last week when all five airlines raised round-trip domestic rates by $4 apiece in a span of two days. Price-fixing is illegal, after all. But some might argue that such a widespread, coincidental rate hike still constitutes price-fixing.

Richard Posner, federal judge and the most-cited legal scholar of the 20th century, is of that opinion. And as The New Yorker noted in a piece last year:

“By this logic, the Delta and US Airways shuttles between New York and Washington, D.C., would probably be price-fixers, since their prices do vary by how far in advance you buy, but are always identical.”

You get the point. Ticket prices are going up, and there’s nothing we can do about it. But how is that fact alone enough to send airline stocks skyward?

Fortunately for DAL, AAL, and LUV shareholders, the ticket price increase coincides with waning Ebola fears. Less than a week ago, there were widespread reports of passengers donning face masks and rubber gloves to avoid Ebola transmission. But with the World Health Organization declaring Senegal and Nigeria free of Ebola, the public’s rampant fears seem to be abating.

And let’s not forget the third factor sending airline stocks rocketing towards the heavens today: rock-bottom oil prices. Crude oil, at $83 a barrel, is a full 20% below 52-week highs. And if there’s one thing that AAL, DAL, and LUV shareholders all love, it’s when oil — the airline industry’s biggest input cost — goes on sale.

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As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/airline-stocks-aal-stock-dal-luv/.

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