Southwest Navigates Airline Hell to a Fourth-Quarter Profit

More

In yet another horrifically bad year for the airline industry, Southwest Airlines has risen above the fray again with a fourth-quarter profit -- contributing to its 37th straight year in the black. Less expected was a profit from Continental, which ended a string of 8 consecutive quarterly losses.

The airlines said that business travel was slowly beginning to recover, and they have taken steps to hedge against a steep expected climb in oil prices this year.


Continental reported net earnings of $85 million, 60 cents a share. This was especially striking when contrasted with the airline's $269 million loss a year earlier. Chairman Jeff Smisek told the Financial Times (subscription only link) that a small uptick in business travel had boosted the company's revenues but that full recovery would be a long time coming.

Although the airline has struggled with the same fickle fuel prices as its competitors, it has figured out a way to navigate the squalls.

Airlines use hedging to control their fuel costs, usually by purchasing a contract that sets a price it will pay for jet fuel in the future. If the market price rises above this set amount, airlines are sitting pretty. If it drops below it, they're scrambling.

Southwest has played this field relatively successfully over the past ten years. It lost money on the drop in fuel costs in 2008, but was insulated from soaring prices earlier in the year. So far the airline has not had to skimp on customer service like its rivals, who have begun charging for luggage. Southwest did, however, cut capacity 4 percent in 2009 and does not expect to see growth this year.

Anticipating rising fuel prices, Chairman Gary Kelly has decided to amp up his hedging strategy. But frequent flyers beware: he has also announced his intention to raise fares "as aggressively as we dare" until Southwest hits its profit targets, a strategy that will allow other airlines, who usually have to compete with Southwest's rock-bottom fares, to hike theirs even higher.

Jump to comments
Presented by

Nicole Allan is a former senior editor at The Atlantic.

Get Today's Top Stories in Your Inbox (preview)

The Time JFK Called the Air Force to Complain About a 'Silly Bastard'

51 years ago, President John F. Kennedy made a very angry phone call.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In