Southwest Airlines continues to make it happen in what is obviously a very difficult market – the airline business.

But Wall Street’s focus remains on Southwest’s ability to fight off the crippling effects of high oil prices with financial contracts that have essentially locked in lower fuel prices for the airline while its competitors groan under heavier costs. Though oil prices topped $60 a barrel in the quarter, Southwest has secured financial hedges that limit 85% of its fuel costs during the year to an equivalent average oil price of $26 a barrel.

The hedging strategy saved Southwest $196 million in fuel costs during the quarter, reducing the increase in Southwest’s per-gallon jet fuel expenses to 25%, compared to twice that for its competitors. Through other cost cuts and productivity improvements, Southwest said it was able to drive down its overall unit costs in the quarter by 3.5%, to 7.81 cents per available seat-mile flown from 8.09 cents a year earlier.

“Considering soaring oil prices and the enormous operational challenges our company and industry have faced over the past four years, our operating cost performance was exceptional and better than we expected,” said Mr. Kelly. Excluding fuel, expenses per seat-mile flown fell 7.7% to 6.27 cents.

If only they flew to Madison…