Although it’s been dropping for the past week (down to just under $125 a barrel on Monday) the price of crude oil is still sky high, and among the hardest hit by soaring fuel costs have been the airlines. But one airline actually managed to log a second quarter profit last week: Southwest. The secret to its success may be an agressive, successful fuel hedging program. All of the major airlines in the U.S. hedge, but Southwest had a whopping 80% of its fuel hedged for the third quarter 2008, paying $61 per barrel, compared to United’s 44% and Delta’s 48%. A Southwest spokesperson says that the airline historically aims to always enter the year with about 80% hedge protection. Hedging programs started in the 80s and became more aggressive in the 90s, but 9/11 and Hurricane Katrina were two major drop-off points in hedging when cash flow and the capital to put on and maintain the hedges became more scarce.
By no means is hedging a cure-all for the beating airlines are taking on fuel costs, however, as evidenced by their recent efforts to jump on the bandwagon to attack speculators for higher oil prices through their letter to customers and Stop Oil Speculation Now Web site. Meanwhile, futures industry leaders have started a Web site and coalition of their own, the Coalition to Protect Competitive Markets, aimed to educate Congress about the dangers of hastily-enacted legislation that could harm the markets.
