Fuel hedges help Southwest profit
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Bob Moon: Never mind energy prices or the economy — Southwest Airlines says it was still flying high through its 69th straight profitable quarter. It looks like Southwest will be the only big U.S. carrier to have made any money in the first half of the year. And in stark contrast to its rivals, fuel costs are actually a big reason for its success, as Marketplace’s Dan Grech explains:
Dan Grech: More than any other airline, Southwest locked in the price it pays for jet fuel months ahead of time. This strategy of hedging has been an insurance policy against the run-up in crude oil prices.
In 10 years, Southwest has saved $3.5 billion due to these fuel hedges. That’s equal to about 83 percent of the company’s profits over the same period.
Darryl Jenkins: They were lucky. Nobody can call the future that well, that consistently and be correct. Hedging is a very dangerous business.
That’s airline consultant Darryl Jenkins.
Jenkins: Going into the next year and the year after that, hedging going to become even more risky. Because right now none of us know where the price of jet fuel is going to be.
Southwest hasn’t made a significant hedging bet in 15 months. But the airline says its current hedging contracts give it time to find other sources of revenue in this new world of expensive fuel.
I’m Dan Grech for Marketplace.
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