Southwest expects stronger Q4 jet fuel prices

OREANDA-NEWS. October 23, 2015. Southwest Airlines is hedging against stronger jet fuel prices in the fourth quarter of this year in expectation of stronger global crude markets.

The airline estimates the cost of jet fuel to be in the \\$2.05-\\$2.1/USG range in the fourth quarter if Brent crude maintains current market value, according to its quarterly earnings report. If Brent crude falls to \\$40/bl, Southwest is hedging a \\$1.75-\\$1.80/USG jet cost. In a \\$50/bl Brent scenario, Southwest places jet fuel at \\$2.30-\\$2.35/USG.

The last time jet fuel prices topped \\$2/USG on the Gulf coast spot market was in December last year, according to Argus data.

The decision to hedge against higher fuel prices came after Southwest lost \\$0.5/USG on hedging in the third quarter this year. But even with the hedging losses, Southwest saw its third-quarter fuel costs drop by nearly \\$300mn to \\$2.20/USG from a year earlier, thanks to cheap crude and strong refinery production.

The price of jet fuel on the Gulf coast spot market averaged \\$1.44/USG from July to September, falling by 0.28/USG in the interim.

Southwest reported profits of \\$584mn on revenue of \\$5.3b in the third quarter, compared to a \\$329mn profit on \\$4.8bn in revenue in the third quarter 2014.