Airlines Find Some Relief

At last, an airline industry attempt to offset high, profit-killing fuel prices with a fare hike is holding firm, providing welcome relief.

The increases, which started last week, have gained traction in part because Northwest Airlines (NWAC) -- known as a spoiler in past fare-hike attempts -- helped initiate them this time around.

"They were led by Northwest, which is notorious for not wanting to raise fares in the past," said Helane Becker, airline analyst at The Benchmark Co., a New York-based brokerage.

The industry's increases will bolster airline revenue, which has been under pressure from too much capacity and intense competition from the low-cost carriers. In that environment, airlines also have found themselves unable to pass along fuel costs to their customers, even after crude oil futures hit an all-time high of more than $55 a barrel last October. That inability to pass on costs to customers differentiates airlines from shippers like UPS (UPS) and FedEx (FDX). High fuel expenses inflicted a total of $9.5 billion in losses at seven of the top eight U.S. carriers last year.

This time, the price increases are likely to stick in markets in which the traditional network carriers compete, observers said. They could, however, falter in areas where competition is fierce from Southwest (LUV) and JetBlue (JBLU), which so far haven't joined in the current round of increases.

Analysts expect major carriers will make so-called carve-outs, pulling back their increases in markets in which they compete with those two carriers.

"Elevated industry fares in JetBlue markets will likely revert to pre-increase/JetBlue levels in the next day or so," wrote J.P. Morgan analyst Jamie Baker in a research note Monday.

That already appears to be happening. On Friday, Northwest withdrew the increase on some fares with which it competes with low-cost carriers, said Kurt Ebenhoch, a Northwest spokesman. It also reversed the increase on some routes in order to compete with Delta's (DAL) highest business fares.

America West(AWA) also left fares unchanged on a few "select" routes, according to a spokesman.