By Petrofix Administrator on 5/14/2009 10:41 AM

This paper takes a closer look at Southwest Airlines fuel management programs. One issue that they faced that many firms have is that they have a difficult time passing on higher fuel costs to their customers. The authors look at some of the financial instruments that Southwest Airlines uses in their fuel management programs.

"Does Fuel Hedging Make Economic Sense? The Case of the US Airline Industry - David A. Carter, Daniel A. Rogers, and Betty J. Simkins

By Petrofix Administrator on 5/14/2009 10:30 AM

Original WSJ story about Southwest Airlines capping their fuel costs. Southwest Airlines uses something similar to insurance to cap their fuel costs, and still get market rates if prices fall. They can gain market share when fuel prices are high and their competitors are financially distressed.

If fuel prices fall Southwest Airlines is not in a significantly worse position than their competitors as they can net the benefit of lower market fuel prices with the relatively small premium paid for their insurance-like Petrofix plans.