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Southwest Raises Fares to Offset Fuel Expenses

Southwest Airlines Co., (LUV) the leading U.S. budget carrier, said Monday it raised fares by as much as $10 each way, a move that triggered matching fare hikes by major rivals.

Southwest said it upped its fares to offset the soaring price of jet fuel. Airlines have attempted several revenue-boosting fare increases this year, although most have failed.

The most recent round of fare increases is especially significant because it was led by Southwest, whose usual reluctance to match often causes other carriers to rescind their fare hikes to remain competitive.

"When Southwest chooses to push fares higher, we do sit up and take notice and expect the market to do the same," said Jamie Baker, an analyst with JPMorgan.

Southwest, which influences the cost of plane tickets in the United States because of its size and tendency to undercut rivals, said it increased one-way fares by $10 on long-haul flights of more than 1,250 miles. One-way increases of $1, $3 and $5 affect select short- and medium-haul flights, company spokeswoman Beth Harbin said.

AMR Corp's (AMR) American Airlines and UAL Corp's (UAUA) United Airlines were among the airlines that matched. Fare tracker Farecompare.com said US Airways Group Monday initiated a system wide increase of $1, $3 and $5 each way.

The fare increases come as Southwest faces rising fuel costs. The airline's jet fuel hedges, which effectively allow it to pay below-market prices for fuel, are gradually unwinding.

Last month, Southwest announced plans to trim its capacity growth to about 6 percent in the fourth quarter and 2008, down from previously planned growth of 8 percent, because of softening demand.

Southwest shares were up 2 cents at 15.57 in afternoon trade on the New York Stock Exchange.