Secret Squirrel
Well-known member
- Joined
- Jun 6, 2003
- Posts
- 1,257
Your example is totally wrong because you never bought the fuel, You bought the right to take delivery at a future date for a certain price. What you fail to understand is it is only a GAAP issue until you have to actually take REAL CASH to get out from under your hedge. They have hedges at 60-70 dollar a barrel. They are selling fuel now for 40 dollars a barrel. At some point there is a guy that SWA agreed to buy fuel from at $60 a barrel. He is knocking at the door right now. You are paying $40 for the fuel, and giving $20 to the guy you gambled with. If your example was correct, there would have been no effect on your cash. SWA is burning through a ton of cash to try to get out from under these contracts.