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 by strategically using a multi-year fuel hedging program, protecting it from a surge in jet fuel prices.
Unlike Southwest, major competitors such as American, Delta, and United chose not to hedge, leading to higher fuel costs for these airlines.
This financial strategy positions Southwest for "solid profits" through 2022, enabling significant cost mitigation despite overall rising fuel prices due to global supply chain issues and increased travel demand.

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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.