What would it be like to pay $2 for a gallon of gasoline when everyone else is paying twice that much?
Southwest Airlines Co. knows, and that's why many analysts believe it may be one of the few U.S. carriers -- if not the only one -- to post a profit this year while still offering bargain fares.
The airline, one of the largest at Los Angeles International Airport, locked in more than 70% of the fuel it expected to consume this year at about $51 a barrel, far below Thursday's closing crude price of $126.62 a barrel.
Other large airlines, meanwhile, have only 20% to 30% of their fuel "hedged" this year at an average cost of $100 a barrel.
With the huge cost advantage, Southwest hasn't had to hike air fares or like other carriers impose new fees, including last week's decision by AMR Corp.'s American Airlines to charge domestic fliers $15 for checking a single suitcase and to increase other fees.
The advantage won't last forever because oil prices could plummet, and even if they stayed high the amount of fuel Southwest has been able to hedge in future years diminishes considerably from 55% next year to 30% in 2010.
But because of a calculated risk the airline took last year -- essentially betting correctly that fuel prices would escalate -- Southwest "may be the only one left standing" by the end of 2008, said Terry Trippler, an industry analyst who expects most major carriers to post a loss this year with perhaps a few even going into bankruptcy.
"Southwest is sitting there looking really good," Trippler said.
The carrier's aggressive fuel hedging is having a broader effect on fares in the markets it serves, travel experts say.
Tom Parsons, publisher of BestFares.com, said that travelers flying between two cities where there is no competition from Southwest would pay about $340 more round-trip than they did just six months ago.
"The difference today between flying on a short-haul route where air fares are offered only by one of the top six major airlines are reaching ridiculous dollar numbers compared to short-haul routes served by low-cost carriers such as Southwest," Parsons said.
FareCompare.com, an air fare search service, noticed that American last week dropped the price of a round-trip ticket by an average of $30 on routes also served by Southwest including flights out of San Diego, Seattle and Las Vegas. At the same time American was raising fares by an average of $60 in other markets and imposing the new bag fees, according to FareCompare.
