Southwest Airlines Co. this fall is on track to become the busiest carrier at Los Angeles International Airport and at three of the four regional airports in Southern California as high fuel prices force its main competitors to cut flights.
The low-fare carrier, benefiting from a successful fuel-pricing strategy, has been able to hold down its fuel expenses while rivals have scrambled to cope with record fuel costs.
Using long-term contracts, Southwest last year locked in the price it would pay for most of the fuel it planned to use this year based on a crude oil price of $51 a barrel, far less than the prevailing price of oil that has hovered around $126 this week.
In the second quarter, Southwest paid an average of $2.19 a gallon, before tax, for jet fuel, compared with an industrywide average of $3.51 a gallon.
Thanks to this fuel-price hedging, Southwest on Thursday reported a 15% jump in second-quarter profit, becoming the only major airline to make money for the period.
As a result, while other big carriers are slashing routes, Southwest has held steady and is gaining a larger share of the flights at local airports.
After the other major airlines are finished making their expected cuts this fall, Southwest will have shot from its No. 3 spot to knock American Airlines from the No. 1 perch at LAX. By November, Southwest will account for nearly 17% of all flights at LAX, the nation's fourth-largest airport.
"Our competitors are in a full-retreat mode," Southwest Chief Executive Gary Kelly said in a conference call with analysts Thursday.
Other carriers in Southwest's markets are cutting capacity by 15%, far more than the industry average of 10%, he said. "In some cases, we've seen competitors exit from our markets completely."
The shift is dramatic. At Ontario International Airport, Southwest will account for 56% of flights, up from 43% last year. At Burbank's Bob Hope Airport, 63% of the flights will be operated by Southwest, while at Orange County's John Wayne Airport, Southwest will account for 29% of flights. Southwest has no flights at Long Beach Airport, which is dominated by another low-fare carrier, JetBlue Airways.
For Southern California travelers, Southwest's grip on air service at four of the five airports could have mixed consequences. With legacy airlines such as American and United cutting flight schedules, consumers will have fewer choices and could potentially face higher fares.
