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Southwest to continue kicking butt thanks to fuel hedges

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  • Southwest to continue kicking butt thanks to fuel hedges

    Southwest Airlines, in danger for much of this year of losing its quirky dominance over the U.S. domestic airline industry, could soon be standing, once again, head-and-shoulders above its competition.

    Better service? Happier and more productive workers?

    Not this time. The reason for Southwest's rapidly increasing advantage over other big airlines is much simpler: It loaded up years ago on hedges against higher fuel prices. And with oil trading above $90 a barrel, most of the rest of the airline industry is facing a huge run-up in costs, and Southwest is not.

    Southwest owns long-term contracts to buy most of its fuel at the equivalent of $51-a-barrel oil through 2009. The value of those hedges soared as oil raced above the $90-a-barrel mark and they are now worth more than $2 billion. Those gains would mostly be realized during the next two years.

    Other major airlines passed on buying all but the shortest-term insurance against high fuel prices, giving Southwest executives a mild case of schadenfreude....

    Bobby DeBarge
    1999 Firebird Driver| Aviation Enthusiast