Southwest Airlines offsets rising fuel costs with fuel hedging

• The Dallas-based airline says it’s approximately 64% hedged for the rest of 2022.
• Fort Worth-based American Airlines stopped hedging fuel in 2014, when oil prices cratered, per CNBC.

Context: Because the profitability of an airline is so dependent on the volatile oil market, some carriers agree to purchase fuel in the future at a predetermined earlier price. Former Southwest CEO Gary Kelly made fuel hedging a cornerstone of the airline’s business strategy.

• United Airlines and Delta Air Lines are also fully unhedged, though Delta owns an oil refinery.
• Several international carriers, including American, are facing additional fuel costs from the need to fly longer routes to avoid Russian and Ukrainian airspace.

By the numbers: The average cost of jet fuel in North America has gone up 82% over the last year, according to the International Air Transport Association’s jet fuel price monitor.

• Southwest purchased a large percentage of its fuel when the company estimated that gas prices would be between $2.05 to $2.15 per gallon for all of 2022, according to a Barron’s report late last year.

What they’re saying: "The current energy price environment is exactly why we have a systematic hedging program — to provide insurance in the near-term, particularly over the timeframe of our published schedule," a Southwest spokesperson tells Axios.