Southwest Airlines planes
Southwest Airlines planes - 
Listen To The Story


Tess Vigeland: Don't get the wrong idea -- Continental and United Airlines are not merging. No, they've reached an alliance. This way, they will avoid regulatory scrutiny. And, well, they had to do something. They're dealing with -- wait for it -- record fuel prices, and a formidable competitor, Southwest Airlines. Marketplace's Janet Babin reports from North Carolina Public Radio.

Janet Babin: The flight attendants are casual. Seats are unassigned. And the fuel that goes into its 737s costs less than what its competitors pay.

Southwest has $5 billion worth of fuel hedges on the books. That means it negotiated a lower fee for a preset amount well before prices flew skyward. In the first quarter of this year, Southwest paid about $2 a gallon for jet fuel, while the market rate was at least a dollar higher.

The fuel hedges won't last forever, but analyst Richard Aboulafia with The Teal Group says Southwest will still be flying higher than its rivals:

Richard Aboulafia: The fuel hedges are just the icing on the cake. Southwest has consistently kept its costs below any of its major competitors.

Some airlines may have to shrink routes this summer. But look for Southwest to announce new destinations. And unlike other airlines, you probably won't have to pay extra to take along a suitcase.

I'm Janet Babin for Marketplace.