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Southwest Airlines

How Southwest Airlines Remains Free of Fees

Every seasoned traveler knows that when her flight search yields nothing but expensive options, she should head to Southwest's website for its fee-free flights. At a time when most airlines are contemplating how they can cut costs and are paring down their flight schedules and overhead, Southwest is actually boosting its presence in some cities. As with everything airline related, it all comes down to fuel: While other airlines are struggling for profit, Southwest has actually earned profit through its fuel hedging contracts.

The contracts allow Southwest to purchase 80 percent of its fuel at $61 a barrel — yesterday crude oil was trading at $126 a barrel and at one point it reached $147. Talk about a lucrative bet! Their contracts expire in 2012, though every year a smaller percentage of their fuel will be covered. When the time comes they'll need another clever hedge to keep them from the same troubled destiny as the other big airlines.


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