Southwest Airlines has taken the unusual step of shipping jet fuel from Texas to California by boat, as concerns over supply in the region continue to grow. The airline’s Chief Financial Officer, Tom Doxey, told the outlet that the move was made in response to volatile fuel markets and high prices on the West Coast.
The ship, which traveled from Houston through the Panama Canal, arrived in Los Angeles on May 28 with approximately 12.6 million gallons of jet fuel on board. This amount is equivalent to about a week’s supply for the airline’s West Coast operations.
Fuel market volatility has been a major issue since the US and Israel struck Iran in February, with the West Coast being heavily reliant on imports. Southwest Airlines reported that its fuel expenses increased by nearly $900 million in the second quarter compared to last year.
Related: Cardinal Healths deals have long term impact
The airline was able to make the shipment using a waiver of the Jones Act, a law that requires shipments between US ports to be carried on US ships. This waiver was granted by President Donald Trump in March, as fuel prices soared in the aftermath of the Iran conflict.
Concerns over fuel supplies have been eased somewhat, according to a Southwest Airlines spokesman, as countries that had restricted exports earlier in the year have begun to relax these restrictions. However, jet fuel prices remain a major concern for airlines, with United Airlines reporting a significant increase in jet fuel costs.
Jett fuel is the largest expense for airlines after labor, and prices have been rising again in recent weeks due to renewed tensions with Iran. In response, airlines have been scaling back their capacity growth plans, which has helped to boost fares. Despite higher fares, demand remains strong, according to airline executives.
In response to the volatile fuel market, US airlines have abandoned fuel hedges, which had previously helped them lock in costs through futures contracts. With the US no longer awash in supply, carriers are now having to adapt to a more uncertain fuel market.
Related: Chancellor Unveils New Small Business Funding Package
The use of fuel hedges had been largely discontinued over the past decade, but the current market volatility may lead to a reevaluation of this strategy. As the situation continues to evolve, Southwest Airlines and other carriers will be closely monitoring fuel prices and adjusting their strategies accordingly.
The shipment of jet fuel from Texas to California by boat may be an unusual move, but it highlights the lengths to which airlines are willing to go to ensure a stable supply of fuel. They are taking steps to mitigate the impact of fuel price volatility on their operations.
Airline executives are working to find solutions to the fuel supply challenges.