I'm Thinking About Buying Southwest

I have avoided owning airline stocks because they are money-losing businesses.

The money-losing exception, however, has been Southwest Airlines (LUV). They have made money every year for decades.

I've flown them a lot in the last few years, and I love their philosophy of simplicity - no hub/spoke models, fly only one type of aircraft, and no assigned seating.

Southwest's stock looks like a great value. Despite it's rapid market share growth this decade, the shares are still $10 below its January 2001 peak.

But, the stock is acting strong. It is up 7% this year, while the Dow Jones airline industry index has fallen 46.5%.

Now, in the next few years,I think that Southwest has a good chance to explode and dominate the U.S. airline industry.

Why? one reason: fuel hedges.

Their CEO, Gary Kelly, was ahead of his time when, as CFO at the time of the first Persian Gulf war, he got the airline involved into fuel hedging.

During the low oil prices of the late 1990's, he talked the Board into expanding the fuel hedges into the future.

Now, Southwest will pay about 1/3 of the going rate for fuel through 2011.

This should save them about $5 billion, compared to the other airlines.

Now, Kelly is going to try a balancing act: expanding Southwest (including internationally) without losing their culture.

For example, Southwest will probably not buy any airlines but, they would take advantage of a troubled airline by buying gates, routes, and/or planes.