Southwest Airlines Ships Jet Fuel to California Amid Market Volatility

Southwest Airlines hired a ship this spring to send jet fuel from Texas to California, where prices are much higher and concerns had grown about supply, Chief Financial Officer Tom Doxey told CNBC. It was a first for the Dallas airline.

"It brought like a week's supply to the West Coast at a time when when supply was most constricted ... when it was most at risk," Doxey said.

The ship, which left from Houston and went through the Panama Canal, arrived May 28 in Los Angeles and had about 12.6 million gallons aboard, Southwest said. For context, Southwest used 564 million gallons of jet fuel in the last quarter.

The West Coast is much more reliant on imports than other parts of the country. Jet fuel prices spiked and have been volatile since the U.S. and Israel struck Iran in February.

Southwest said Thursday that its fuel expenses were up nearly $900 million in the second quarter from last year.

For the shipment to California, the airline said it used a waiver of the Jones Act, a law from 1920 that requires shipments between U.S. ports to be carried on a U.S. ship. President Donald Trump waived that requirement in March as fuel prices were soaring in the weeks following the start of the Iran war and subsequent shipping snarls erupted in the Strait of Hormuz, a key channel.

Worries about supplies intensified as countries restricted exports this year, fearful of running low on fuel. Those concerns have since eased, a Southwest spokesman said.

Jet fuel is airlines' biggest expense after labor. Prices eased in late spring and early summer but rose again as tensions reignited with Iran this month.

Last week, United Airlines, which flies more internationally than any other U.S. carrier, said it is using the latest available fuel prices for its quarterly estimates because prices have been so volatile.

In its July 15 report, it said jet fuel increased $575 million, or a $1.12 hit to adjusted earnings per share, for the third quarter alone.

U.S. airlines have abandoned fuel hedges, which help them lock in costs through futures contracts, over the past decade or so as the U.S. was awash in supply, keeping a lid on prices.

This time around, carriers have scaled back their capacity growth plans, which is also helping boost fares. Airline executives this month said demand remains strong despite higher fares, which they say are likely to stick.