Airlines raising fares more quickly
US airline stocks gained massively on June 13 after JPMorgan Chase (JPM) said that the carriers are lifting fares more rapidly than anticipated. JPMorgan Chase analyst Jamie Baker, in a note to clients, stated that airlines are raising ticket fares for the second time in just over five months, Bloomberg reported.
In his note, Baker wrote, “We were obsessing over domestic fares much less than usual, given what we viewed as a low probability of further increases.” He further added, “We are pleased that our skepticism was proven ill-placed.”
The analyst believes that in addition to strong travel demand, US air carriers are also benefiting from a reduction in the supply of flights and seats due to the worldwide grounding of Boeing’s (BA) 737 MAX jets. Regulators around the world have banned 737 MAX aircraft from flying after two 737 MAX jets planes crashed within five months, killing 346 people.
Baker noted that American Airlines (AAL) has recently raised its ticket fares by $5 each way, a move that was soon followed by Southwest Airlines (LUV) and Hawaiian Holdings (HA). All the three airlines have increased their fares twice in just over five weeks, and the analyst anticipates another hike very soon.
Following JPMorgan’s report, stocks of US air carriers soared robustly during yesterday’s trade. American Airlines was the highest gainer, which registered an intraday gain of 6.4%, followed by United Airlines (UAL) and Spirit Airlines (SAVE), which were up 4% and 3.5%, respectively. Southwest Airlines rallied 3.1%, and Hawaiian Holdings rose 2.3%.
The rally in airline stocks helped the U.S. Global Jets ETF (JETS) gain 3.4% during intraday trade. The ETF invests in passenger and cargo airlines, aircraft manufacturers, airports, and terminal services providing companies.