I continue to marvel at the business genius of Southwest Airlines. When I lived in Phoenix, I watched ticket prices drop as Southwest, led by its legendary CEO Herb Kelleher, move into the market and competed with what was then the hometown airline: America West. The two became fierce rivals and consumers took sides as if they were the Yankees and the Red Sox. It was a fun business dynamic to watch, and an incredible opportunity for inexpensive flights in and out of Phoenix.

Southwest continues to buck the industry trend by actually making money and increasing its market share. When it enters a market, ticket prices drop and the other airlines are forced to compete. Again, consumers win as competition and market forces work their magic.

Now comes this Triangle Business Journal story about Southwest’s incredible performance at RDU. A key component of the current competitive edge relates to fuel. Southwest bought fuel futures and, thus, its fuel costs are much, much lower than airlines who didn’t make that move. That has allowed Southwest to avoid the fee-for-every-single-thing approach that other airlines are employing to try and cover costs. While others are cutting flights at RDU, Southwest is adding another flight to Nashville. The future for Southwest is bright, but the others are facing uncertain times, including cutting flights, as Carolina Journal’s Mike Lowrey reports today. From the TBJ story:

The airline can grow at a time when others are shrinking in large part due to its fuel-hedging position, which is the best in the industry. Through the purchase of futures fuel contracts, Southwest has locked in 70 percent of the fuel it will purchase this year at $51 per barrel. By comparison, crude oil was selling for around $130 per barrel July 23.

Southwest’s hedging position will decline significantly between now and 2012, but “that’s so far over the horizon that it doesn’t matter,” says airline consultant Bob Mann of R.W. Mann & Co.

He thinks the other major carriers will be in dire straits by the end of 2009 if fuel remains sky high and capacity cuts don’t produce the desired financial results.

“They’ll be burning furniture to heat the house,” Mann says.