State of the Airlines

Wednesday, January 19, 2005

NEWS: Southwest Airlines makes Money but...

Lex at the Financial Times pulls two Southwest Airlines related numbers together to make an interesting point. (link)

Southwest reported a $56 million profit for the 4th quarter of 2004. Reality Check: Southwest saved $174 million in Q4 thanks to their aggressive fuel hedging policies. Some really smart people at the Financial Times have done the math for me...without the fuel hedges its estimated that Southwest Airlines would have lost around $50 million.!

It appears that Southwest Airlines will remain fairly insulated from the brutality of current fuel costs. Its being reported that they have 85% of their 2005 fuel needs covered by hedged fuel prices. This is a big advantage for Southwest...strike that...a huge advantage that will allow them to continue their low fare assault on the industry. I can't be upset with them for using this advantage but I find the implications a little disturbing. The vaunted low fare carrier model held up as guiding light for all to follow might need some tweaking to work in today's airline environment.