It's easy to blame the public market system, but when exceptions like this are readily found, it's worth investigating whether there are other factors in play than the income statements alone.
BUT - the reason Southwest was the "low fare" leader was because they locked in fuel prices back before we had the massive spike in prices in the early 2000s. That gave them a tremendous advantage over the other airlines given fuel is such a massive part of their overall costs. That combined with standardizing on a single plane (less impactful but still helpful) allowed them to both claim and honor the "low-cost leader" title.
Now that fuel prices have returned to a more "normal" state, their prices had to revert to the mean. They may be cheaper on some legs, but it's not universal anymore.
When oil prices went up, Southwest got to make record profit. When oil prices went down, Southwest got to make record losses.
Southwest also just offers no service to many unprofitable markets. If Southwest were the only carrier, many smaller airports would shut down. There would be maybe 40 larger airports, with high volume flights.
So, if by record losses you mean lower profit than normal then sure they got hammered in 2008.
A simple example suppose if price of commodity increases by x your company fails and that has say a 10% chance of happening. If you usually profit 10 billion per year and you can hedge for say 1 billion per year then money wise it seems like a break even. However, failure costs not just this years profits, but every year after that. So, your expected profit over the next 10 years increases even if the hedge does not save you any money over that same 10 years.
Well I mean it's implemented that way (buying long-term futures) but it's really just locking in a set price. Oil prices skyrocketing doesn't make them infinite money, because they have to either take contract delivery at the price they originally bought at, or use their futures profits to buy at the spot market. In the same way, falling oil prices doesn't cost them huge amounts of money, they just won't be able to take advantage of the fall in prices like a non-hedged carrier would.
I assume they try their very best to hedge to actual predicted usage and not try to profit from swings either way. If they could do that they'd be better off running a hedge fund.
This is a similar argument to "this year is cooler than the last year so climate change is a hoax." Taking a single exception as a stand-in for the mean IS an invalid argument. At best, it points out that the world is more complicated than explanation X, but it certainly doesn't invalidate X for the sample it is predictive for.
If you're claiming that overall temperate (or energy content etc) of the atmosphere is on an upward trend because of specific drivers, then one anomalous year doesn't refute that (so long as the rest of the years and samples are in line with the claim/theory).
If you're claiming that a certain ubiquitous dynamic exists that forces all providers in one market to do X to stay profitable, then it would refute that claim to point to one provider that is able to consistently, year after year, stay profitable without doing X.
I'd imagine if X explains a good fraction of what you're talking about, you'd want to pursue X as an explanation over chasing explanations that effect the exceptions.
First, it's a hard market to get into for new carriers (regulation, high capital costs for planes, etc.). Airports also only have a certain number of gates, and until expansion of the airport, it can be hard to accommodate new flights. This is how we get to the 'hub and spoke' model of airline carriers, where it can be cheaper to fly through their hub city on a longer flight with 2 planes, than to fly direct.
And if you're not competing with another airline, you're competing with yourself. This means lowering costs and trying to increase your margin, knowing it's a race to the bottom and people will have to fly anyway, no matter how bad it is.
Basically, you may or may not be on a route that has competition between two cities. Or another way to put it, if Southwest does great (and I do love Southwest), why aren't they in every airport and on every route stealing market share by doing it better?
In part, this helps each employee have a deeper investment in each and every event that happens in relation to a flight -- they work harder and more efficiently, get better turnaround times, more on-time flights, and better customer satisfaction.
When I fly, I choose to fly Southwest whenever that is possible. If that's not possible, then I might fly JetBlue, because they usually also do a decent job in these areas. I loved Virgin America as a second choice, before they got bought by Alaska Airlines.
But ever since my first flight on Southwest many years ago, they have been my favorite airline.
Not listing your fares on any channel other than your own, for example. People assume you're the cheapest, even when you aren't. And, no big fees to pay the sellers.
Picking only profitable airports and routes. They avoid airports with high fees and slow procedures that keep aircraft on the ground. And they avoid routes that don't support fares or load factors they want.
There's only so much space for other airlines to do the same. Sure, things would correct over time, but no airline has been willing to try it and bleed cash waiting for the normalization.
They also cherry pick routes (smart).
They will eventually revert to the mean.
You may be thinking of a time long ago.
Their only real advantage was a speculative bet on fuel prices.
Again, they are already reverting to the mean and will continue to do so.