Welcome to Flightinfo.com

  • Register now and join the discussion
  • Friendliest aviation Ccmmunity on the web
  • Modern site for PC's, Phones, Tablets - no 3rd party apps required
  • Ask questions, help others, promote aviation
  • Share the passion for aviation
  • Invite everyone to Flightinfo.com and let's have fun

Southwest Hedges

Welcome to Flightinfo.com

  • Register now and join the discussion
  • Modern secure site, no 3rd party apps required
  • Invite your friends
  • Share the passion of aviation
  • Friendliest aviation community on the web

jumppilot

Something in a box
Joined
Feb 14, 2002
Posts
477
I'm suprised I haven't seen anything on the boards about this.

With the price of oil dropping (and with things probably getting a lot worse, I wouldn't be suprised if it got to $40), is Southwest's hedge advantage over?

Is anyone at Southwest worried they have to start competiting on a level playing field, something they've been immune to these last few years?
 
Did you miss the part where SWA posted their first quarterly loss in 17? years on the write-down of their hedges?
 
There is a cost but it isn't as bad as it might seem.

We are hedged 75% for 2009 at 75 dollars a barrel. If oil stays below 75, then it won't help us and the money we spent to buy those hedges was wasted. the good part is, we wouldn't have bought them if we couldn't make money at 75, so we should make a good deal at 50 a barrel. that is the theory anyway.

I hope we are continuing to hedge now that oil is lower for further out in the future.

the loss was a GAAP loss, which was no more 'real' than our large profits based on GAAP last summer. but if wall street wants to say our streak has ended, fine by me. Gary oughta be managing for 10 and 20 years out, not next quarter's profit or loss.

I suspect we'll do just fine on a 'level playing field.' but I guess we'll have to see. I'd be happy if the industry settled down a little with less gut wrenching upheaval all the fricking time.
 
There is a cost but it isn't as bad as it might seem.

We are hedged 75% for 2009 at 75 dollars a barrel. If oil stays below 75, then it won't help us and the money we spent to buy those hedges was wasted. the good part is, we wouldn't have bought them if we couldn't make money at 75, so we should make a good deal at 50 a barrel. that is the theory anyway.

I hope we are continuing to hedge now that oil is lower for further out in the future.

the loss was a GAAP loss, which was no more 'real' than our large profits based on GAAP last summer. but if wall street wants to say our streak has ended, fine by me. Gary oughta be managing for 10 and 20 years out, not next quarter's profit or loss.

I suspect we'll do just fine on a 'level playing field.' but I guess we'll have to see. I'd be happy if the industry settled down a little with less gut wrenching upheaval all the fricking time.

True that the loss was a GAAP loss on the unrealized gain/loss of the hedge positions. So right now, when someone talks about SWA posting a loss it's currently a fictious loss. HOWEVER... when the hedge positions are closed and oil is below what we paid, this will translate into an actual (realized) loss unless revenue is raised to make up for the difference. While the hedges are used to fix (most of) the fuel costs to mitigate our exposure to a variable market, if the revenue plan was to use hedge profit(s) to lower the amount of revenue needed then the loss will be realized.
 
Last edited:
This is beyond my limited understanding, but I also have heard that we have insurance on our hedges that takes care of our interests if heating oil goes below our hedged investments. Keep in mind the hedges are on heating oil, not crude. Anyone with a better grasp on these issues with a better explanation?

shootr
 
Swa CASM is much lower so now they have a real advantage. SWA is not the only carrier who hedge next year either. the economy is a much bigger fator to consider for next year, reduced demand.
 
Swa CASM is much lower so now they have a real advantage. SWA is not the only carrier who hedge next year either. the economy is a much bigger fator to consider for next year, reduced demand.

However the loads have been dropping and will drop, for everyone. While oil is dropping I think the BIG concern will be the passengers having MONEY to actually fly in this economic climate.

Good Luck to us ALL,

AAflyer
 
However the loads have been dropping and will drop, for everyone. While oil is dropping I think the BIG concern will be the passengers having MONEY to actually fly in this economic climate.

Good Luck to us ALL,

AAflyer

That is the absolute truth....all other points are pretty much moot without people buying tickets.
 
There was a report early last month on cnbc.com that tracked airline travel during the last several recessions. All the way back to the early 80's. It showed a 6% drop off during the recessions. Most airlines cut over 10% from this summers peak travel period. Fuel at my company was 55% of our costs in July. We are now paying 50% less for jet fuel then we were then. (Our release shows what we pay per gallon in the destination and arrival city). With oil continuing to fall I am sure the cost will continue to drop.
So basically our costs have dropped 25% and we have cut 10% of our capacity. I think every airline will be okay.


P.S. Unless management screws it up.
 
Last edited:

Latest resources

Back
Top