Airlines vs. Fuel: The Southwest Story

In the past year, fuel has nearly doubled in price for airlines. To cover this,  most (if not all) airlines have raised fares. Some airlines have begun to charge for checked bags. Others, such as US Airways, have removed in-flight snacks, and added fees for a drink or a bag of 10 mini-pretzels. My question is, who isn’t adding these fees? Answer: Southwest Airlines.

For a majority of my airline critique affair, I had outsted Southwest as a ‘good airline.’ I was annoyed with the ‘run-for-your-seat’ method and I heard terrible things about their customer service / cabin crew. However, recently, I’ve found that Southwest Airlines is a customer service company, and an airline second. Additionally, the seating isn’t all ‘run-for-your-seat’ and it’s zoned now, which is good.  If you asked me who to fly a year ago, I would say AirTran Airways  or US Airways. I’m not doubting those two airlines, but let’s just say that Southwest is… a little bit better at everything compared to those airlines.

In recent years, Southwest leaped ahead to the top of the charts for most domestic passengers handled. Their customer service and wise business model helped them achieve that. Yet, if we look even further, Southwest had an advantage all along; Fuel.   Fuel hedging  “is a financial strategy that lets airlines or other investors protect themselves against rising prices for commodities such as oil by locking in a price for fuel. It has been described as everything from gambling to buying insurance,” (http://www.ajc.com/search/content//business/stories/2008/07/01/jetfuel.html).  Since this contract’s initiation in 1999, Southwest has saved $3.5 billion dollars. In the first quarter of this year, Southwest paid 50% less for fuel than United Air Lines did. The fuel efficient aircraft, the Boeing 737-700s, and the efficient employees at Southwest, have allowed 25 minute turns to be possible. With that time, the airplanes are in the air a large percentage of the day, thus making more money for the airline.

In this post-9/11 era of air travel, no airline has reaped more benefits from fuel hedging than Southwest Airlines. While most airlines are cutting capacity, Southwest is adding flights but closing low-profitable routes. I wouldn’t be surprised if they are the largest airline by 2012, when their fuel hedges expire.