Southwest Fuel Hedge

About Southwest Fuel Hedge

Southwest Airlines was one of the few major US airlines that did not file for bankruptcy in the 2000s. Southwest had locked in fuel prices through long term hedge contracts. In 2008, Southwest saved 2 billion through fuel hedges while competitors paid market rates. Southwest became the largest airline in the US by domestic passengers. The fuel hedging strategy, credited to CEO Gary Kelly and CFO Laura Wright, was one of the most successful corporate hedging programs ever. When oil prices fell in 2015, Southwest gave up some of its hedges, taking losses. But the strategy had bought the airline years of competitive advantage. The Southwest case shows how risk management can be a competitive weapon.