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Why Did U.S. Airlines Stocks--AAL, DAL, LUV--Climb Today?

Benjamin Rains
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Why Did U.S. Airlines Stocks--AAL, DAL, LUV--Climb Today?

Shares of the biggest U.S. airline companies surged on Friday amid a turbulent period for the industry as rising fuel costs weigh on profits and investor confidence. The recent gains stem from a move that many of the airlines have made to help combat rising costs.

Shares of the biggest U.S. airline companies surged on Friday amid a turbulent period for the industry as rising fuel costs weigh on profits and investor confidence. The recent gains stem from a move that many of the airlines have made to help combat rising costs.

Baggage Fees

JetBlue Airways JBLU was the first major U.S. carrier to announce higher fees for checked luggage at the end of August. The company, which was one of the last airlines to offer free checked bags, lifted its price for the first checked bag from $25 to $30. This move made it one of the highest fees in the entire industry. JetBlue also upped its fees for the second bag by $5 to $40. The cost of a third checked bag on JetBlue jumped from $100 to $150.

United Airlines UAL quickly followed JetBlue’s lead and upped its baggage fee from $25 to $30. The airline giant also matched JetBlue’s new price point for a second checked bag. United said in a statement that the change allows the company to "continue investing in the overall customer experience in today's marketplace."

It took fellow power’s Delta DAL and American Airlines AAL roughly three weeks to commit to new checked bag fees. Delta announced on Wednesday that it upped its fees for the first and second bags by $5 each to match United and JetBlue’s $30 and $40 price points. American joined the party Thursday to match the price points of its rivals.

Investors should note that these fees have become increasingly important to airlines in recent years. Plus, these checked bag fees are often charged on both ends of a round-trip flight. U.S. airlines reportedly make about a quarter of their revenue from fees. These carriers pulled in a total of $7.4 billion from fees on checked bags and ticket changes last year. American, Delta, and United brought in a bulk of this revenue.

Shares of American jumped over 4% Friday on the back of its baggage fee hike announcement. DAL popped over 3%, while UAL climbed 0.80%. Meanwhile, Southwest Airlines LUV saw its stock price surge over 2.2%. Southwest is an outlier among its airline peers as the company still offers customers two free checked bags.

Friday’s gains come amid a downturn for the U.S. airline industry. Despite strong quarterly passenger totals, airlines weren’t able to raise their prices quickly enough to make up for what was a roughly 55% increase in fuel costs from a year ago. Rising fuel costs have forced many airlines to lower their profit guidance. But these higher baggage fees might help offset fuel prices.

 

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
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