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(Bloomberg) -- Southwest Airlines Co. will end its long-held policy of hedging against swings in fuel prices, marking a pullback of one of the few remaining US carriers that are active in the oil derivatives market.
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The move will eliminate hedging premium payments, which can be expensive, Chief Executive Officer Bob Jordan said at an industry conference on Tuesday. The company will seek to unwind its current hedging agreements if or when opportunities present themselves, he added.
Fuel can be an airline’s biggest cost, but many US carriers stopped seeking protection from derivatives around the global financial crisis, after suffering with wild oil price swings. Southwest was one of the few companies to persist.
In 2022, when oil prices surged above $100 a barrel, Southwest was one of a handful of airlines that said it had gains from its hedging position of more than $1 billion on paper. The policy began in the 1990s and saved the company $3.5 billion over a decade, from 1998 to 2008.
As of the end of last year, the company had positions through to 2027.
The end to hedging is part of Southwest’s efforts to carve more than $1 billion from spending as the carrier seeks to stabilize profits and stem a declining share price. The carrier also announced Tuesday that it’s ditching its long-held policy of letting travelers check two bags at no charge, a hallmark of its business model for more than five decades.
The Dallas-based airline recently said it would cut 1,750 corporate jobs in its first ever involuntary layoff, and earlier detailed plans to assign seats and create a premium section on its planes.
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