“The contracts’ value reflected the drop in the price of oil. But under federal accounting rules, Southwest must exclude about 10 percent of its future contracts, and value them at current prices.”

“Southwest’s earnings from operations number mentions that it includes fuel hedge gains on contracts that closed during the quarter. But if you include the upside of hedging, is it really fair to exclude fuel hedge investments that appear to be under water?”

I believe the difference is that they closed. The special items are just the value of current contracts – this is why Southwest’s profit was bolstered by special items in the second quarter.

Another thing that needs to be considered is that I believe WN uses options for most of its hedges, so it pays a premium in exchange for not being obligated to make the final transaction.