With oil near $130 a barrel, why does Southwest Airlines stand alone in the airline industry in its aggressive use of hedging to keep fuel costs under control?
Southwest has locked in more than 70% of its jet-fuel requirements this year at a price equivalent to $51 a barrel for crude oil. By contrast, other big carriers have hedged 30% or less of their fuel needs this year. Those carriers generally expect to pay the equivalent of $85 to $100 per barrel of oil under their hedging programs.
For Southwest, the payoff has been huge. Low-cost fuel has helped it stay profitable in the past year, even though its core airline business otherwise would have operated in the red in some recent quarters. Meanwhile, other airlines are posting losses, jacking up airfares and resorting to hefty baggage- check surcharges in an effort to cover escalating fuel costs.