Southwest Airlines Fuel Bet Will Pay Off

The hedge will save the airline $1.2 billion this year.

Thursday, June 30, 2022 at 05:05 PM ET

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Southwest CFO Tammy Romo told investors that the company's "fuel hedge provided excellent protection against rising energy prices." [Photo: Thom Patterson]

Key Takeaways:

Southwest Airlines saved $1.2 billion this year through a strategic multi-year fuel hedging program, effectively shielding itself from the significant surge in jet fuel prices.
Unlike its major competitors (American, Delta, United), Southwest's decision to hedge proved highly profitable, leading to substantial cost savings.
Southwest's fuel hedging success is projected to result in solid profits for the remainder of 2022, bolstering its financial strength and maintaining its investment-grade rating.

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Southwest Airlines (NYSE: LUV) managed to save $1.2 billion this year after making some savvy deals on its fuel contracts. In a recent SEC filing, the company said its multi-year fuel hedging program provided coverage against spikes in jet fuel prices.

The loss of Russia from the oil supply chain has caused oil prices and jet fuel to skyrocket, forcing airlines to fork over more money to cover their trips or trim their schedules. Plus, with the relaxing of COVID border restrictions, demand for fuel has only gone up, with little extra to go around. The Energy Information Administration (EIA), which tracks fuel prices, said a year ago while the world was still in the throes of the pandemic, jet fuel cost four times less than it does now—on average, it was $1.90 per gallon during the same week in June 2021. Last Monday, June 27, this year, that price was $4.13 per gallon.