Southwest's profit secrets

Although its stock is down 45% since the beginning of 2001, Southwest Airlines (NYSE: LUV) is the only airline to make a profit every year since it was founded. As The New York Times reports, Southwest's founder Herb Kelleher retired as chairman after 37 years this week. And he got a very warm send off from employees.

This is really one of the keys to Southwest's success. As I wrote in Value Leadership, here are some big reasons that it's been able to profit over the years:

• Treats employees well. Southwest genuinely cares about its employees. It spends a significant amount of time selecting them and it pays them well -- including giving them stock options and profit sharing -- and treats them with respect. The happy employees treat customers well and the happy customers keep coming back.
• More productive. Southwest turns planes around at the gate in 20 minutes. It doesn't serve meals -- just snacks. This cuts time that might be spent waiting for food to arrive at the plane and cleaning up after. And since employees care about the company and are rewarded for Southwest's profitability, they look for ways to keep it profitable.
• Hedging on fuel costs. Southwest hedges jet fuel -- which is the second biggest airline cost. 70% of its fuel is hedged at $51 a barrel which compares favorably to the current $135.