The Dow Falls Short of a Record, but Airlines Lift the Transports to All-Time Highs

The Dow Jones Industrials (DJINDICES: ^DJI  ) didn't manage to set an all-time record high to close out the week last Friday, even though the S&P 500 did climb to unprecedented heights. Yet the Dow Jones Transports (DJINDICES: DJT  ) did hit a new record high on Friday, and the strength of airline stocks United Continental (NYSE: UAL  ) , JetBlue (NASDAQ: JBLU  ) , and Southwest Airlines (NYSE: LUV  ) played a huge role in the Transports' supremacy over the Dow Jones Industrials last week.

Fundamentally, the airline industry has never been stronger. Consolidation and reductions in the number of aircraft serving many markets has led to reduced competition, and that's allowed the remaining players in given markets to boost their prices and impose additional charges like baggage fees without fear of retribution. At the same time, changes in competitive position stemming from various merger-induced moves are making waves throughout the industry, with Southwest in particular taking advantage of newly available slots at Washington's Reagan National Airport to include new flights there as well as in its key Dallas market. JetBlue also got some coveted slots at Reagan National and should benefit from them as well.

In the latest sign of their strong competitive position, airlines are trying to boost their revenue the old-fashioned way: by raising fares. Last week, United Continental and JetBlue joined other industry giants in implementing fare hikes, marking the latest in more than a dozen attempts to boost ticket prices so far this year. Southwest didn't immediately join in the increase, and in the past, it's been almost impossible for JetBlue, United Continental, and other major airlines to sustain higher fares without Southwest following suit.

Still, there have been winners and losers among airlines. Until this past week, United Continental had badly lagged its peers in terms of share-price appreciation, as ongoing challenges in integrating the post-merger United and Continental operations have proven more difficult to overcome than many had hoped. Lately, though, investors clearly hope that United Continental can use the same general ideas that its peers have taken advantage of to bolster their own prospects. If it can, then United Continental has a lot more room to fly higher than some of its competitors.

The Dow Jones Transports are a lot more than just airlines, but these three companies have played a key role in helping the Transports to new records. If the Dow Jones Industrials follow suit with new records of their own, then the bull market could have further to climb.

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