Who Says The Airline is Dead?

Pretty much everybody. It is so obvious to see why people are bearish about the airline stocks now - high gas price, shrinking profit, bankruptcy concerns, low customer satisfaction, safety concern. Basically the entire aireline industry is in a "perfect storm".

In order to survive, many airline companies tries to cut cost by doing something unfortunately further lowers customer satisfaction such as charging for food service and check-in luggage. Other actions includes cutting jobs, cutting routes and merger.


Is it the end of the airline industry? A commercial recently gives me a different idea. The new Southwest Airline(LUV) commercial says it is not charging a dime on service while other airline are charging everything from checked bag to sit at aisle or window sit.

So what did Southwest do differently? The key is the successful oil hedging startegy which allows the airline to pay only $2 per gallen on gas while everybody else is paying $4 or more. And how good is the strategy? The company has 70% of the fuel locked at $51 a barrel while other airlines only has 20% to 30% fuel hedged.

Southwest Airline will probably be the only airline posting profit this year according to analysts. And considering the challenges the other airlines are facing, don't be surprise if few years down the road the airline become the largest domestic carrier in United States.