Gadling

With airlines in their worst state since 9/11 and bankruptices posting left and right, one lone airline, Southwest, has prevailed in staying profitable for the last few years.

How have they done this? Sure, they’ve got a pretty interesting business model, friendly customer service and a comprehensive network across America, but is that what’s really keeping them on top?

Partially. It’s more got to do with the oil hedge that the airline locked in well before it spiked up to $140 a barrel. Purchasing their fuel at rock bottom prices while the competition had to pay through the nose helped give Southwest the competitive edge. They could set their fares at lower prices (thus forcing the competition to match), not instill any crazy baggage or superfluous fees and still make a profit while the others were getting crushed.

Now that oil has come down from the stratosphere though, the oil hedge can actually work against them — instead of paying the now $70/barrel of light sweet crude, they’re still pinned to their commitment. And this last quarter, Southwest finally broke and actually posted a loss. Yesterday’s Marketplace has an interesting piece to this effect.

So does this mean that the glory days of Southwest are now over? I doubt it. The airline had several consecutive quarters where they could stockpile cash above the competition, build their aviary and prepare themselves for the future. And lets face it — they’ve got a business plan that’s built around paying for jet fuel at that hedged price, so all they have to do is keep cooking.

Once oil rebounds and demand increases again, Southwest will be right back up on top.