Consider Taking Off The Rose-Colored SWA Glasses For a Moment and Discuss...

[GuppyWN]

Home heating oil closely follows the price of crude oil. Since you can't buy crude oil on the futures market - they buy home heating oil futures.

Productivity is huge. We fly our airplanes more per day and turn them around quicker than most. Our pilots work more per day than most. BIG.

Our linear system is big. We don't take you back forth to the hub and sit for 4 hours. We take you in the general direction you want to go and the airplane keeps moving.

I hate to say it like this but we don't have to outrun the bear, we just have to outrun the other guy.

I am confident in WN's leadership and direction. We have always prospered when times were the bleakest. I believe you are seeing that again now. The balance is too not grow more than you can support.

Cheers,
Gup

 

[Wesb737fo]

If you want an interesting read, try "NUTS", basically a history of SWA and their business philosophy.

Yeah I know there is alot of Kool Aid in this book, nevertheless, it might answer alot of questions as to why they are, and have been so successful.


The hedging thing could come home to roost if oil crashes because their pricing advantage would erode but I wouldn't bet on oil coming down anytime soon.

You probably would have better luck digging up Jimmy Hoffa and seeing him pitch in the World Series.

 

[Voice Of Reason]

Home heating oil closely follows the price of crude oil. Since you can't buy crude oil on the futures market - they buy home heating oil futures.

Okay...I am VERY dense when it comes to this stuff, so bear with me...
So how does an airline "hedging" home heating oil directly help the airline with its jet fuel costs (or does it?)?

 

[The Victors]

It doesn't. It's just profit in the stock market like anyone else could do.

 

[Voice Of Reason]

It doesn't. It's just profit in the stock market like anyone else could do.

Thanks, got it...

I was confused because in the beginning we were hearing SW was paying much less for jet fuel due to fuel hedges.

Thanks everyone for your intelligent responses!

 

[BrokenWing]

The fuel hedges never run out friend. Three guys at SWA buy and sell those contracts all day. Its their job. The only way they would work against us is if a new oil field was found somewhere, and the cost of oil dropped by a huge amount and stayed down.

So, if oil goes to $500 a barrel and SWA is hedged at $350, that's okay? Don't think so.

 

[Voice Of Reason]

Haven't heard anything lately about the whole SWA/FAA fiasco, and what kind of economic impact (if any) huge fines (if there will be) would have on the airline?

 

[airlinepilot]

Word at HQ is the fine will be much, much less because SWA had the FAA primary inspector's approval to do what we did. When it gets to court that should weigh heavy in our favor. As far as any problems it cased with daily ops....that was very minimal.

 

[B727Driver]

So, if oil goes to $500 a barrel and SWA is hedged at $350, that's okay? Don't think so.

If oil gets that high, SWA maybe the only one around who can afford it. In reality, the US economy will be on life support before this happens. Leisure travel, yeah right, gone as would be most of the airlines not only here but worldwide. If oil goes to $500, our dollar would be so weak that the peso would be worth a bunch more. Then Mexico would be building a fence.

 

[JumpJetter]

SWA actually pays the same for fuel as everyone else. Each quarter you will have a column on the balance sheet titled "Realized Gains from Fuel Hedging". Something to that effect. Anyway, any money you made from that offsets what you spent in fuel.

Honestly, the productivity at SWA is quite amazing. They fly the jets A LOT. Don't spend a lot of time on the ground, cause planes don't make money on the ground. Without a hub and spoke system you are not rushing folks to a hub to make the final connection.

I've worked at a regional and another major and I can say in they are far more efficient with aircraft than the other guys. That is not enough to offset the cost of fuel right now, but the hedging is helping that. This is the most important thing to remember regarding hedging. IF THE MASSIVE FUEL HEDGES WERE NOT IN PLACE A SWA THE BUSINESS PLAN WOULD HAVE BEEN DIFFERENT.