Southwest fuel hedge misstep
Kai Ryssdal: The discount flyer Southwest Airlines released quarterly profits today. Fares were up and planes were full. But still, the company was hit with its first quarterly loss in two years, which is where the irony comes in.
Southwest lost money on its fuel hedges — future purchases of gas for its jets. Hedges have made money for Southwest in the past. But Marketplace’s Jeff Tyler explains their luck changed when oil prices fell over the summer.
Jeff Tyler: Airlines buy fuel hedges to protect against volatility in the oil market. When airlines like Southwest lock in high prices, they lose money when prices drop.
Jim Corridore is an airline industry analyst with S&P Capital IQ.
Jim Corridore: Southwest has been doing worse than some of its peers of late. Up until 2008-2009, they had the best hedging program in the industry. Right now, that’s reversed itself a little bit.
But some say we shouldn’t read too much into a single quarter.
Robert W. Mann: The objective is not to hit the lottery on a quarter-by-quarter basis.
That’s airline industry consultant Robert W. Mann.
Mann: It’s very easy to look like you’re a savant one quarter and look you’re a dolt the next. That’s really what we’re seeing here with Southwest.
He says Southwest’s fuel hedges have already recovered in this current quarter. Among the major carriers, only one airline does not buy fuel hedges: US Airways. That approach paid off for them last quarter — when oil prices fell, US Air made money.
I’m Jeff Tyler for Marketplace.
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