I had a friend send me a note this weekend, asking me about Southwest’s hedging positions for the rest of the year and into 2008. Since I am on kind of an oil-centric kick today, I thought it might be of note to relay what I said to him as well.

His question was simple. Does Southwest have advantageous hedge positions going into 2008 — or is this not the case? Since he had not heard much about their positions, he was assuming the airline did not.

Not correct.

The fact is, the higher the price of oil goes, the more advantage Southwest gains on its competitors, as the airline is sitting on some very nice hedge positions.

In the airline’s recent earnings call, CFO Laura Wright said that the airline now has 90% of its fuel hedged at $51 a barrel for the fourth quarter.

In 2008 the airline has 70% of its fuel needs hedged at about $51 a barrel, and in 2009 the airline also has approximately 55% hedged at about $51 a barrel. In 2010, over 25% of the airline’s fuel needs are hedged at approximately $63 a barrel, and in 2011 and 2012 the airline has over 16% of its fuel needs hedged at approximately $64 and $63 a barrel respectively.

Very nice.

Funny. I am reminded of the comments that JetBlue then CEO, and now Chairman, David Neeleman said more than a few times a couple of years back. Remember when he said he hoped oil would continue to rise — that JetBlue had such low costs — it would be no problem for the airline if oil went to $80 a barrel or $100 a barrel. It was Neeleman’s equivalent of the “Bring it On” type of pronouncement.

David Neeleman is a gifted person in some respects — but that was not one of his shining hours.

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