Southwest stopped fuel hedging a year ago. Whoops.

Almost a year ago to the day, Southwest Airlines ended its multi-decade practice of hedging fuel costs, becoming the final major US airline to end the exercise.

Now, a historic jet fuel margin squeeze because of the US war in Iran is highlighting the downside risk of that decision for Southwest and every other major American airline.

Fuel hedging can insulate airlines against volatile swings in fuel prices. The practice famously helped Southwest in particular, including saving it $1.3 billion in 2008 amid a fuel surge during the global financial crisis, and $1.2 billion in 2022 during another spike as Russia invaded Ukraine.

But the practice can also lock carriers into higher fuel costs during drops in oil prices, which is why carriers like American Airlines, United Airlines, and Delta Air Lines stopped doing it about 10 years ago. JetBlue stepped away from hedging in 2021, and Alaska Air suspended its program in 2024.

Now, those decisions are being called into question, with US jet fuel prices up 87% this year, according to the Argus US jet fuel index. Airline shares have been pummeled in March, with carriers shedding billions of dollars in market cap.

Without hedges, airlines are expected to hike airfares quickly — as they historically do when oil prices surge. Last week, United CEO Scott Kirby said fare increases would “probably start quick.”

Getting ahead of criticism around the airline’s lack of hedging, Kirby also said that “no one hedges anymore” and “even if you do, hedging the crack spread is really hard to do.”

More industrywide cost-saving strategies may come soon. The 2008 spike in oil costs coincided with the widespread adoption of bag fees by American carriers. In the years following the 2022 surge, budget carriers shifted heavily into the business of catering toward wealthier travelers who don’t change their plans as quickly when fares climb.