Southwest jet fuel shipment from Texas to LA marks airline first
Southwest sent 12.6 million gallons of Texas jet fuel to Los Angeles as West Coast supply worries and higher fuel costs hit airlines.
By Sal Moretti · Money Reporter
3 min read
A Southwest jet fuel shipment took an unusual route this spring: from Houston, through the Panama Canal, and into Los Angeles with 12.6 million gallons aboard as the airline braced for possible supply trouble, CNBC reported.
Southwest Airlines CFO Tom Doxey told CNBC the move was a first for the Dallas-based carrier. The fuel arrived in Los Angeles on May 28, according to Southwest, at a moment when West Coast fuel supply was under pressure and prices were running higher than in other parts of the country.
Doxey said the cargo represented roughly a week of supply for the West Coast during a period when fuel availability was tight and at risk, CNBC reported. For scale, Southwest used 564 million gallons of jet fuel in the most recent quarter.
Why did Southwest ship jet fuel to California?
Southwest moved the fuel because the West Coast depends more on imports than other U.S. regions, according to CNBC, making it more exposed when supplies tighten. Jet fuel prices had jumped and stayed volatile after the U.S. and Israel struck Iran in February, CNBC reported.
Supply fears grew as some countries restricted exports this year to protect their own fuel stocks. A Southwest spokesman told CNBC those worries have since eased.
The airline said it relied on a Jones Act waiver for the shipment. The Jones Act is a 1920 law that requires cargo moving between U.S. ports to travel on U.S.-flagged ships. President Donald Trump waived that requirement in March as fuel prices rose after the start of the Iran war and shipping disruptions developed in the Strait of Hormuz, CNBC reported.
How fuel costs are hitting airlines
Southwest said Thursday that its fuel expenses in the second quarter were up nearly $900 million from a year earlier. Jet fuel is typically airlines’ largest expense after labor, according to CNBC.
Prices cooled in late spring and early summer, but CNBC reported they climbed again this month as tensions with Iran flared. That swing has made planning harder for carriers.
United Airlines, which CNBC described as the U.S. carrier with the most international flying, said last week it was using the latest available fuel prices in its quarterly estimates because prices have been so unsettled. In a July 15 report, United said jet fuel added $575 million in costs, equal to a $1.12 hit to adjusted earnings for the third quarter alone.
CNBC reported that U.S. airlines largely moved away from fuel hedges over the past decade or so, after strong domestic supply helped restrain prices. Fuel hedging uses futures contracts to lock in costs before prices move.
Airlines are also pulling back on capacity growth plans, a move CNBC reported is helping push fares higher. Executives this month said demand remains strong even with pricier tickets, and they expect higher fares to remain in place this year.
This story draws on original reporting from CNBC.