Southwest Airlines Company (NYSE: LUV) shares are trading lower on Thursday. The company disclosed a sustainable aviation fuel (SAF) supply agreement with a subsidiary of Valero Energy Corporation (NYSE: VLO).
This two-year agreement aims to deliver sustainable aviation fuel to Chicago Midway International Airport (MDW) and marks the state's largest announced SAF supply agreement.
As per the deal, Southwest Airlines will purchase a minimum of 3.6 million gallons of neat SAF-approximately 12 million gallons when blended-for its operations starting as early as the fourth quarter of 2024.
The airline also has the option to acquire up to 25 million gallons of neat SAF (around 84 million gallons blended) during the agreement's term.
The neat SAF is expected to be produced from waste-based feedstocks, such as used cooking oil, animal tallow, and distiller's corn oil.
This blended volume could account for up to 35% of Southwest's jet fuel usage at MDW based on the previous year's consumption.
Notably, Diamond Green Diesel, a joint venture between a Valero affiliate and Darling Ingredients Inc. (NYSE: DAR), will supply the neat SAF.
SAF will necessitate collaboration across and beyond the value chain. With this SAF volume, Southwest can enhance access for corporate and cargo customers to promote the use of SAF in its operations.
This week, the company issued a response to Elliott Investment Management's call for a special meeting of shareholders.
"Elliott's Special Meeting request is unnecessary and inappropriate considering the extreme nature of Elliott's demands. The timing of Elliott's request to apparently pursue Board control appears designed to maximize disruption of Southwest's execution of its important business transformation underway as we approach one of the busiest travel periods of the year," the company said in a statement.
Investors can gain exposure to the stock via U.S. Global Jets ETF (NYSE: JETS) and ETF Opportunities Trust Cultivar ETF (NYSE: CVAR).
Price Action: LUV shares are down 2.45% at $30.15 at the last check Thursday.