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.

Continue reading Southwest's profit secrets

Southwest's profit secrets originally appeared on BloggingStocks on Sat, 24 May 2008 07:00:00 EST. Please see our terms for use of feeds.

You have to hand it to Herb Kelleher, the famous CEO of Southwest Airlines (NYSE:LUV). He is retired now, and his legacy was to make the airline the best low-cost provider in the US. But he also did something else that was just as important. He bought hedges against higher oil prices.

According to The New York Times "Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion."

While other airlines struggle with the damage that $90 oil will do to their bottom lines, Southwest will have a huge advantage in terms of its cost base for at least two years. That should increase the value of the company compared to almost every other US airline.

Kelleher will now be remembered as more than just a clever cost-cutting and marketing executive.

Douglas A. McIntyre is an editor at 247wallst.com

Southwest's oil hedge could save it $1 billion or more originally appeared on BloggingStocks on Thu, 29 Nov 2007 10:35:00 EST. Please see our terms for use of feeds.