Originally Posted by Valar Morghulis

People forget that by skill or luck, SWA killed it on fuel hedges during the 2000s. They made a ton of money which they used to subsidize their expansion, make money and simultaneously doing a lot damage to the yields in the rest of the industry.

This did a lot of damage in an industry that wasn’t as nimble or as lucky, or simply didn’t have the resources to hedge. But in some cases, that hedge for SWA was the difference in profit and loss, and not from flight operations or passenger revenue.

SWA rolled the dice in a big, big way, and it paid off handsomely. It was something like a 10 year hedge at close to $22/BBL, and just a couple of years later the price of oil skyrocketed (for those who weren’t around and/or paying attention, oil in 98-2001 was dirt cheap. Gas was about 1.00/gal).

They were able to turn losses into profits, subsidize expansion with cheap gas, and drive a stake through the hearts of their competitors, and leveraged the fall out from all of that for more than a decade. They were doing pretty well up until then, but this move was foundational for the next level.

Whether it was skill or luck is not really relevant, but traditionally, it’s better to be lucky than good.