Southwest Airlines Reports Record Quarter With Gains From Fuel Hedging

Aerospace & Defense Southwest Airlines Holds $1 Billion In Fuel Hedges Ted Reed Senior Contributor Opinions expressed by Forbes Contributors are their own. New book: Kenny Riley & Black Union Labor Power in Port of Charleston New! Follow this author to improve your content experience. Got it! Jul 28, 2022, 09:10am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin A Southwest Airlines airplane taxies from a gate at Baltimore Washington International in October .

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(Photo by Kevin Dietsch) Getty Images Southwest Airline LUV s reported all-time record revenue and net income, and currently holds fuel hedges valued at $1 billion in the second half of 2022. “Travel demand surged in second quarter, and thus far, strong demand trends continue in third quarter 2022,” said CEO Bob Jordan, in a prepared statement. Leisure demand accounted for most of the second quarter gains.

“While second quarter 2022 managed business revenues remained below 2019 levels, the company was encouraged by the sequential improvement during the quarter, as well as managed business average fares that exceeded 2019 levels,” Southwest said. As for fuel hedges, “We experienced inflationary pressures and headwinds from operating at suboptimal productivity levels in second quarter, which we expect will continue in second half 2022; however, our fuel hedge continues to provide significant protection against higher jet fuel prices,” Jordan said. Fuel hedges were valued at $332 million in the second quarter.

As of July 21, the fair market value of fuel derivative contracts settling in third quarter 2022 through the end of 2024 was an asset of $1 billion, the carrier said. MORE FOR YOU American Airlines Pilots Say Operations Managers Must Go After Summer Breakdowns The U. S.

Air Force Is Gradually Rebuilding Its B-52 Bombers From The Rivets Out An American Bomber Visited Malaysia. A Bizarre Mix Of Local Jets Rose To Meet It. Southwest said its “multi-year fuel hedging program continues to provide insurance against spikes in energy prices and significantly offset the market price increase in jet fuel in second quarter 2022.

The company’s current fuel derivative contracts contain a combination of instruments based in West Texas Intermediate, Brent crude oil, and refined products, such as heating oil. “ Looking ahead, Southwest expects to be profitable in the third and fourth quarters. “Although early in the booking curve, the company is encouraged by current business bookings post-Labor Day and the expected sequential improvement from second quarter to third quarter 2022,” the carrier said, noting it had increased short-haul trips in business markets in the current quarter.

Southwest reported said net income excluding items was $825 million, or $1. 30 per share. Revenue was $6.

7 billion. Shares, which closed Wednesday at $40. 77, were down 7% in premarket trading.

“Revenue guide is beneath our/consensus forecasts while (cost) guide is above our/consensus forecasts,” wrote Cowen COWN analyst Helane Becker. Regarding operations, Jordan said the carrier completed more than 99% of flights in May and June. “Since April, we have been delivery a more reliable product,” he noted, adding “We have added flights in second half 2022—especially in short-haul business markets—to better support our operation and the restoration of our route network.

” Southwest expects to take delivery of 66 Boeing BA aircraft this year, down from the 114 aircraft it initially expected. It will end the year with 765 aircraft. Southwest also announced that its flight credits will not expire, noting: “We are famous for offering industry-leading flexibility for customers, and it is a key differentiator of our brand” Follow me on Twitter or LinkedIn .

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