Southwest Airlines Plunges 14% as Fuel Hedging Strategy Backfires

Southwest Airlines has emerged as the sector's biggest laggard over the past month, with its stock down 14%.

This decline is more pronounced than that of other major carriers and the U.S. Global Jets ETF, which are down 9%, 11%, and 12% respectively.

The reason for Southwest Airlines' underperformance lies in a strategic decision made by the airline long before oil prices turned ugly - its discontinuation of its fuel hedging program.

This means that Southwest Airlines is fully exposed to price swings, unlike its peers which can absorb them more gradually through hedging.

The guidance reset also amplified the pressure, with Southwest Airlines lowering its earnings bar to $3.25 to $4.25 per share, reflecting the forward fuel curve as of July 17 and an estimated year-to-date fuel headwind of $1.33 per share.