By Mukund Srinivasan Background: Southwest Airlines is the largest airline measured by number of passengers carried each year within the United States.It is also known as a ‘discount airline’ compared with its large rivals in the industry.In a study in 2001, the productivity of Southwest employees was over 45% higher than at American and United, despite the substantially longer flight lengths and larger average aircraft size of these network carriers.
Airlines that want to prevent huge swings in operating expenses and bottom line profitability choose to hedge fuel prices.
In 2005, 85 per cent of the airline’s fuel needs has been hedged at per barrel.
World oil prices in August 2005 reached per barrel.
In the second quarter of 2005 alone, Southwest achieved fuel savings of 6 million.
The state of the industry also suggests that airlines that are hedged have a competitive advantage over the non-hedging airlines.