Airline stocks are surging today after a bullish report from Deutsche Bank analyst Michael Linenberg said carriers are posting stronger-than-expected revenue in the wake of rising fuel costs by hiking up fare prices and adding fees.All the big airlines made another round of fare hikes last week. This week they also announced they would be adding a whole new bunch of fees for on-board food and accommodations.
Last year new fees for on-board items brought in $22 billion for the industry.
From Deutsche Bank’s Michael Linenberg (emphasis ours):
So far year-to-date, it appears that the industry has been able to keep pace with the surge in energy prices via multiple air fare increases. In fact, the number of fare increases for 2011 are already on par with the total fare increases observed in all of 2009 and 2010. For the remainder of 2011 and 2012, our forecast assumes that the US airlines are able to recapture about 65% – 70% of the increase in energy costs through higher revenue (presently it takes about a 3% increase in revenue to offset a 10% increase in fuel expense).
Whether or not consumers, pinched at the gas pump, will be able to keep up with these fee hikes is unknown, but the fact we’ve already seen as many hikes in 2011 as 2009 and 2010 combined should be worrying for airline investors.