Who will be the next Southwest Airlines?

Southwest Airlines saved over $3.5B in fuel costs from 1998-2008. At the time, hedging fuel for an airline was unheard of. But, with the Gulf War in the rearview mirror, CEO Gary Kelly was looking for ways to protect Southwest from future price shocks, so the company began hedging fuel.

As a result, Southwest bought massive blocks of futures, and if prices went up, the airline would save. That’s precisely what happened. From 1998 to the summer of 2008, it saved an estimated $3.5 billion over what it would have spent if it had paid the industry average for jet fuel. That translated into 83 percent of the Company’s profits during that same span.

This example, while fossil fuel-based, highlights the importance of having an energy strategy if it is one of the biggest COGS of your business. A trend that is growing to include more companies than ever.

For businesses like data centers and manufacturing, power procurement is a differentiator. Exposure to high, volatile costs or lack of reliable power threatens those without a forward-looking energy strategy.

Demand growth due to trends like EVs only further the need for businesses to have a coordinated energy strategy. Own a fleet of vehicles? Electrifying them at the lowest possible cost while maintaining the same level of service will be essential over the next two decades.

These aren’t the only industries affected by electrification. In states like Texas, where the customer psyche is still reeling from winter storm Uri, having a sound plan for energy consumption means paying the lowest price and operating when the grid doesn’t. Businesses now report reliability as a major reason they’ve adopted solar and storage on-site, something that didn’t seem possible only a few years ago.

With the growing popularity of on-site generation and storage and the ability to participate in power markets, energy as part of a broader cost strategy has become a necessity. Those markets will likely be more volatile over the coming years until battery storage reaches sufficient scale.

Will companies be able to save $3.5B with the right strategy? Probably not. But, we are entering a time where there’s more opportunity to be creative with power consumption and procurement. The businesses that take advantage will be able to invest additional capital into growth areas of their business in the same way that Southwest added routes and newer planes with their savings.