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

[ultrarunner]

...
What makes people think that SWA won't find itself in the same position as a UAL (recently the holy grail, now the polar opposite)? Yeah, maybe they have much better management than UAL...but HOW do they survive (and continue to survive) in these unprecedented conditions and remain "low cost"?

VOR, the issues are multi-faceted....

But as others have said, from a cost-structure standpoint, SWA is the leader...

First the obvious:

One plane type. Every bloody airframe is essentially the same. This keeps pilot training costs at a minimum, spares costs at a minimum, etc...

Think about UAL, DAL, AAL and the costs associated with maintaining spares for 6 or 8 fleet types. Sims, spares, crews...etc...it goes on and on.

Secondly, SWA, in some markets, utilizes some outlying airports. So at the time, they can get a massive bang for the buck by agreeing to serve that airport.

It's no secret SWA hits their vendors pretty hard, so that also makes a big difference in cost savings.

These are just a few examples...but big ones whe you start looking at costs.

Legacies like I mentioned above need hundreds of millions a day just to turn on the lights....

Massive international hubs, half a dozen or more fleet types....

REALLY big training centers..

HUNDREDS of sims....ever been to AAL training academy? I have...it can be seen from oribit!

So, with all that said, these legacies are burnded with day-to-day fixed costs that is not supported by current fare levels.

SWA, simply by its nature, avoids that type of burden.

Now, I admit, this is a very simplistic view, but I'm not that smart...so that's all I gots!

Ultra

 

[Voice Of Reason]

Now, I admit, this is a very simplistic view, but I'm not that smart...so that's all I gots!

Ultra

...But that's a lot! :beer:
Thanks Ultra, and everyone else who helped this non-economics major understand a bit!

 

[Skybus]

There are even a couple of SWA Captains who make >$300,000 and one who made over $400,000 last year. Not unusual for some F/Os to make > $130,000

And many F/As in the 120-130K range by WORKING HARD.

Instead of trying how to make as much as possible doing as little as possible we understand by working hard we can all prosper.

 

[Skyboy722]

but those fuel hedges were complete luck - no one saw fuel going where it did today when they locked in those contracts.

I GUARANTEE you, HUNDREDS of MILLIONS of dollars were NOT thrown into a hedging investment that was a shot in the dark. And Southwest was one of few that had (and continues to have) the kind of cash to make such investments.

I for one can not wait until everyone is on a level playing field.

Even ex-fuel, Southwest has the second lowest CASM in the business. (Second only to Airtran, and only by a little). So even on a "level playing field", SW still has a significant cost advantage, for alot of reasons mentioned above.

That being said, the reality is, we are one bad CEO away from a very different reality...

 

[BrokenWing]

We pay $350. The other airlines pay $500. We can charge less for a ticket.

The other reasons include:
Great leadership, common goals, efficiency, teamwork, forward thinking mgmt., and luck. Luck is where timing and preparation come together. Was it Parker that said, "Southwest has predicted 10 out of the last 2 recessions."

The point that you're missing is even if SWA is paying $350 and everyone else is paying $500, airline travel as we know it will not be the same. There will be massive consolidation and reduction because people won't be flying. So, even if you're hedged at $350, you will not be able to sell enough tickets at the price required to support your current schedule. You might be the only game in town, but people just aren't going to fly. Luck will only get you so far, it won't fill airplanes when americans are struggling to pay bills and feed ther families.

 

[jhill]

Considering that not too long ago UAL was the "holy grail set-for-life" pilot job, and most people thought that nothing could change that...I have a topic for discussion about SWA.

Please don't turn this into a SW hating thread, or a "we'll always be on top thread" from the opposite side.

I'd like to hear from some people who feel they might have a bit of financial sense (of which I have absolutely none) which might explain to me HOW SWA can succeed in THIS economic climate (and worsening), especially once the effects of no longer benefiting from smart fuel hedges kicks in.

The only rational-seeming way for airlines to survive, seems to be to clear out the negativity that makes them so hated in the eyes of the general public, AND raise prices and pass costs along to customers, not cheap tickets from employee subsidies....

Which brings me to SWA... just HOW will they be able to continue (in THIS economic env & worse) to pay employees the way they do (well) and keep tickets dirt cheap? I just don't see how people are talking one minute as if these low cost carriers will survive (in THIS climate) and then how fares need to raise exponentially another minute (which seems to be the solution I see).

I could understand if SWA was on a Wal-Mart type road (cheap/mass product/PITIFUL wages)...but I don't get how they can continue to be on top with their current model (as the economic climate worsens, and the effects of loss of great fuel hedges kicks in).

What makes people think that SWA won't find itself in the same position as a UAL (recently the holy grail, now the polar opposite)? Yeah, maybe they have much better management than UAL...but HOW do they survive (and continue to survive) in these unprecedented conditions and remain "low cost"?

Again...break it down for the financial knowledge impaired... I am genuinely curious as to how to gauge this and not get in the mode of jumping from ship to ship (remaining at the bottom at each ship) following a good job that may not exist anywhere transporting passengers in any venue (that doesn't involve the following : being away 7 or 8 days at a time for your entire careers, justifying your flight plans to some (fractional) CEO you're flying that think he knows it all, or
going to a foreign country and fly for an Emirates type operation)....

Someone else aready said productivity. It is one of the keys. Another is employee attitude. Most folks here care about the company and even each other. Most try very hard to save the company money when and where ever we can. Back to productivity. We have some ofthe highest paid mechanics in the industry but we only have 4 per A/C. If that many. Everone here is addicted to overtime. Hard work pays off around here. I have never had so much flexibility with my schedule or so many ways to make extra money. This place is not perfect and we bitch and moan but we also work hard and pitch in to help when needed. Another key is we know damn well we are not immune to this industies woes. Every year things seem to get tougher and tougher. We are lucky to have very smart, good people in management that we can trust. They are not over paid and they work hard. They keep coming up with better ways to do things and control cost.

This is a career of luck. Wether some of these guys will admit it or not we are just lucky, especially right now. Will it last? Who knows. I just hope we all keep trying like we do now. As long as that is the case I like our chances. If we get greedy and lazy it will surely go the way of many others. With Herb gone who knows what could happen. This place is woth a lot of money and we all know what can happen there.

PS. The emirates gig is a good deal for some of us.. I've got a buddy that loves it over there and he's making big bucks with a 3 year upgrade. Mega growth planned as well.

 

[Voice Of Reason]

Someone else aready said productivity. It is one of the keys. Another is employee attitude. Most folks here care about the company and even each other. Most try very hard to save the company money when and where ever we can.

That is so true...

I wish more of these aviation execs could get it through their skulls that employees will WILLINGLY be like that if paid well and treated well.

Honestly, that's all it takes for us to go the extra mile and SAVE these companies, MAKE them successful, yet so many execs just don't get it...or egos won't LET them get it.

I'll bet that behind every snarly F/A or unbearable CA at a legacy (or frac run into the ground), there was most likely once someone who DID give a ***t early on.

Also a lot of that attitude becomes the self-fulfilling prophecy of pax who have already decided they are ALL like that and make things hell for those still trying to do a good job....

 

[Jet41]

Smart management, employees that know the value of hard work, management that knows the value of said employees, productivity, employee and management groups that work truely toward the common good

 

[say again]

Smart management, employees that know the value of hard work, management that knows the value of said employees, productivity, employee and management groups that work truely toward the common good

What a concept!! To bad others cant fathom the idea.

 

[Benjamin Dover]

And like KaptainKiwi said, we are a productive group. By the end of June I will be close to 500 hours so far, and that is with between 14-17 days off each month. I'm ok with that because I have no problem earning my paycheck. When you are getting paid to stay home, deadhead, sit in your hotel, etc., its great for you, but not the group.

Work hard, play hard, go home. Works for me.

RDG,

You are are "poster tool" for guys that give SWA a bad name. Having worked at a two different "majors" before SWA I'm sorry to deliver the news that we have the same mix of pilots as anywhere else. Our "productivity" has nothing to do with us, but it is our business model. My buds at other airlines would love to have my duty days, length of layover and average days off. You are being a d0uchebag bragging on here about how much block you fly and how hard you work. You fly more block at SWA because you have to.

I used to have 12+ hour scheduled duty days and 10 hour scheduled layovers which often became 14+ and min 8 hour FAR rest. I have yet to see anything close to that at SWA. We fly more block but have far shorter duty days and much longer layovers than other airlines. You can thank our lack of "hub and spoke" and quick turns for this, or keep believing it is all because of you if it feels better.

Humility is a beautiful concept.

BD

 

[RDG]

Well that was harsh Ben. I didn't think I was bragging and since the hundreds of readers of this post didn't either, maybe you are the one in need of a reality check?

All I said was that we are a productive group, and if you think differently, fine. But don't sling insults because you can't state your point any other way. It makes you look ignorant.

The point is here we go to work, work hard and go home. At my last airline we go to work, fly somewhere, sit for four and a half hours and fly back. We don't let our assets sit on the ground doing nothing when they should be out making money. If that is "bragging" in the world of you, I thank God I am not in it.

Freak.

 

[AlbieF15]

"outrun the other guys, not the bear..." was a commment I saw here and agreed was very true.

There has come a point in the industry where upstart airlines, while not extinct, will become less and less likely. There aren't many hedge funds or international consortiums ready to hand out the mutli millions it takes to create and run a new airline. The absence of captial at the moment, the notoriously low ROI (see Skybus, Virgin, Spirit, etc), increasing fuel prices, and less and less consumer spending all means airlines are likely competing over existing business and not creating new business. This is where SWA can get nasty.

With hedges, smart management, and efficient ops...SWA can move into DEN and make money on flights that UAL simply cannot. UAL then gets to play chicken...do they match SWA's prices and schedules and bleed cash or simply cede market share? I predict a lot of the latter in the coming months. These battles are starting to look a lot like air combat--a zero sum game. For every SWA new hire in 08 there will be a UAL or F9 furloughee soon.

Its a nasty business. Pick your team wisely.

Good luck to all...

 

[skywdriver]

Southwest locked in all of those cheap fuel contracts a long time ago.--->The hedge contract are a work in progress. What you see today isn't want we had 3 or even 5 years ago....it is also not what we will be hedged in 2-3 or even 5 years from now. Each year they are less and less hedged.---> and that due to the changing fuel market. The final numbers are not yet done for 2009...negotiations are still in progress. I think the fuels hedges are completely gone by 2012,--->Take notes...the fuel hedges are part of the long term business strategy...they aren't going away They have a good business plan, but those fuel hedges were complete luck - no one saw fuel going where it did today when they locked in those contracts.--->I really don't think the CEO signed off on "luck" back then...I'm sure the Hedging presentation had some level of "facts" associated with it. The first Hedge contract prices are not the same as the hedge contracts in place today....sure, we are paying more today than we did then...but it's a much more lucrative business proposition today than it was back then...and it works for SWA...why? Because to get in the hedge game....you gotta pay up front....not too many airlines got that kind of "jack".

I for one can not wait until everyone is on a level playing field.--->We live in a capitalist society...no business is guaranteed a "level playing field" in this country I highly doubt the people working at Southwest realize how lucky they are that a couple of guys in the finance group took a huge chance on locking into oil prices 10 years into the future.--->I can't speak for everyone here, but your "Highly doubt" feeling is misplaced when it comes to me. Thats because I sure do realize how blessed we are to have top notch people working for us. And of course, that comes from having flown at a "legacy" carrier where our dim-witted management team couldn't see into the next month....much less 10 years in advance. BTW....lots of Pilots here share my feelings toward those who work in our fuel office.

Maybe some people need to work for an airline like that to realize how good we have it here.[/quote

I am not here to start a huge argument, but unless you either worked on the futures contract team, or traded futures at some other point in your career, it would appear to me that you don't really understand the process. I worked in finance before I got back into flying for a career and had some experience dealing in gold futures. You don't get a futures contract for $70 a pop when the market price is $130. If my memory serves me correctly, and i am sure you will go back to the books on it, but I just don't feel like reading through the 10k, you guys are hedged this year at something like 75% somewhere around $60 a barrel. Oil had been on the rise since what, 03. So, those contracts were purchased well in the past for 08, I think oil got to the $60 level sometime in 05. Point being, yes, you guys have an ongoing fuel hedge program, as do the other carriers. But your huge competitive advantage was created with the contracts that were signed years ago. You make a good point, you guys had the cash to do that when most other carriers didn't.

However, please don't tell me that you think the guys on your finance team had that much insight into the oil market to know they were going to make out like they did. Hedging from a business standpoint gets its name because you are trying to hedge risk, speculative investing on the other hand is a whole different game. With hedging, you look into the future, and you have the chance to make variable costs fixed through futures contracts, you take the unknown factor out of it. Your finance team is not in the business of speculative investing. There is a lot of money to be made and lost in commodities, and there are plently of people that spend 20 hours a day studying the charts to take a speculative position. Your finance guys are not in the business of doing that, they don't have access to the information, and they don't have the time to do it. So, they got lucky. I am not saying they aren't smart guys, but don't give them more credit than they deserve. I am pretty sure if you got them out at the bar after a couple of drinks, they would tell you the same thing.

I am not a Southwest hater by any means, I am in fact very proud of your pilot group for keeping some kind of pay standards in this industry. However, I am sickened by the fact that the public expects such low fairs. You guys can hedge fuel now for the future, but you will be hedging it at $100+ a barrel. Your investors are used to a certain return now that they will not be able to get with that cost increase. Therefore you will have to raise ticket prices, because the shareholders own the company, and therefore people will have to start paying a reasonable price for tickets, and therefore the industry which this country's economy depends on will be in less of a mess than it is now. I see no way that you will be locked into a 50-60% price competitive hedging advantage over the other carriers.

I guess it only makes sense to be proud of the company you work for if they have been successful, and your guys upstairs have run a great show. However, nothing lasts forever. No one stands in the spotlight forever. I wish your company no ill will, but I hate to see people falling into the trap of believing that they will be on top of things forever. In my very small and insignificant opinion, the next wave of the industry will be with all the growth in the Asian markets. There will be a ton of demand from the pacific to here, and there will be a lot of money to be made there. The legacy carriers are not built to compete against southwest from LUV to AUS. I am sure if they could figure out a way to feed their international flying without having to actually fly the domestic system, they would get out of it. The market it totally tapped out, too many seats. However, I think you can make a fair argument that they will be able to underbid or at least evenbid the lower cost carriers on the domestic stuff and supplement the losses there with their international feed. Point being, things change. What worked yesterday, may not work tomorrow. I wish you the best of luck in your career, and appreciate the good discussion. If we ever meet in a bar on an overnight, beer is on you, because I will probably be furloughed. Cheers

 

[Cobra17]

I guess they have been "lucky" for 35+ years now.

 

[SWA/FO]

Not unusual for some F/Os to make > $130,000.

Not unusual for an F/O to make >$160,000

 

[TSA/TWA/AA/TSA]

With hedging, you look into the future, and you have the chance to make variable costs fixed through futures contracts, you take the unknown factor out of it.

This is what a lot of people don't understand. Many airline sell tickets a year out(this is changing), setting pricing more than one year out is RISKY BUSINESS because you have varible costs(namely fuel). Well if you are hedged, its a whole lot easier to set ticket prices profitable(in the black). Have you ever noticed at the legacies how big of swing in loses and profits. This is a concept that WN management understands, reduce risk makes companies more profitable in good times and bad.

Now in these bad times, WN with their cost more fixed can determine if new markets can be profitable. MORE MARKET SHARE, and in MHO their is going to be more market share to be found as other management teams shrink their airlines while whining about some varible cost. "who would of thought gas would be over a $100 a barrel"

WN management now has the opportunity to gain marketshare just like they have for the past 30+ yrs.

Anyone avalible to walk my resume in @ SW, if I'm betting on anyones management team its SW.

WN fuel hedging will never run out, they are constantly hedging fuel, fixing future costs.

 

[U2DRVR]

Hedging from a business standpoint gets its name because you are trying to hedge risk, speculative investing on the other hand is a whole different game. With hedging, you look into the future, and you have the chance to make variable costs fixed through futures contracts, you take the unknown factor out of it. Your finance team is not in the business of speculative investing. There is a lot of money to be made and lost in commodities, and there are plently of people that spend 20 hours a day studying the charts to take a speculative position. Your finance guys are not in the business of doing that, they don't have access to the information, and they don't have the time to do it. So, they got lucky. I am not saying they aren't smart guys, but don't give them more credit than they deserve. I am pretty sure if you got them out at the bar after a couple of drinks, they would tell you the same thing.

This is an excellent point and one I think that is missed by most. Hedging is done primarily to fix costs at todays rates. SWA doesn't hedge to make money, they hedge to control costs so that their profitability and pricing is not at the mercy of the spec market in oil. Ticket pricing can be set based on known costs so that when oil is cheap, they make money off of ticket prices and when oil is expensive, they make money off of hedges.

The real advantage that SWA has is a lot of cash and great credit that allows them to hedge to such a large extent and leadership (not management) that is willing to take the risk.

 

[The Victors]

Southwest locked in all of those cheap fuel contracts a long time ago.--->The hedge contract are a work in progress. What you see today isn't want we had 3 or even 5 years ago....it is also not what we will be hedged in 2-3 or even 5 years from now. Each year they are less and less hedged.---> and that due to the changing fuel market. The final numbers are not yet done for 2009...negotiations are still in progress. I think the fuels hedges are completely gone by 2012,--->Take notes...the fuel hedges are part of the long term business strategy...they aren't going away They have a good business plan, but those fuel hedges were complete luck - no one saw fuel going where it did today when they locked in those contracts.--->I really don't think the CEO signed off on "luck" back then...I'm sure the Hedging presentation had some level of "facts" associated with it. The first Hedge contract prices are not the same as the hedge contracts in place today....sure, we are paying more today than we did then...but it's a much more lucrative business proposition today than it was back then...and it works for SWA...why? Because to get in the hedge game....you gotta pay up front....not too many airlines got that kind of "jack".

I for one can not wait until everyone is on a level playing field.--->We live in a capitalist society...no business is guaranteed a "level playing field" in this country I highly doubt the people working at Southwest realize how lucky they are that a couple of guys in the finance group took a huge chance on locking into oil prices 10 years into the future.--->

Everyone at swa realizes how lucky they are to have that job. If you were there, you'd know this about the employees. The fuel hedges are ongoing. It wasn't a shot in the dark 10 years ago. I highly doubt you understand. I too, can not wait until everyone is on a level playing field. Airtran capt.'s go to work for the same wage that swa fo's earn, for example. Swa strives to pay their employees a proper wage while struggling to keep costs low. Once other pilot groups demand and receive swa pay or better, then we can talk about a level playing field.

 

[Tejas-Jet]

I guess they have been "lucky" for 35+ years now.

Couldn't have said it better myself

 

[pipejockey]

Not all SWA tickets are "dirt cheap" either. I'm flying to Boston in August for a wedding. AAL DFW-BOS roundtrip: $718 for two non-stop each way. SWA DAL-MHT: $850 with 3! stops there and 2 coming back.

I sure hope I am misreading your post. Is that 718 for 2 tickets roundtrip? If so, that IS dirt cheap. My goodness how people have been brainwashed into thinking these current prices are appropriate. Even people, apparently, within our own industry. This profession is doomed I say! DOOMED!!

 

[pipejockey]

And like KaptainKiwi said, we are a productive group. By the end of June I will be close to 500 hours so far, and that is with between 14-17 days off each month. I'm ok with that because I have no problem earning my paycheck.

So swa has you guys thinking that working your a**es off is merely being productive? We all don't want to work the max FAA flight times of 1000 hours you know? But this what the rest of us must do now in the name of being "productive" so we can compete with swa.

There are even a couple of SWA Captains who make >$300,000 and one who made over $400,000 last year. Not unusual for some F/Os to make > $130,000.

This is what we should all be earning at minimum line guarantee, not for working your a** off at 30 in 7, 100 a month or 1000 a year. Management expects US to work our a**es off in order to earn more, yet it is business as usual for those lazy a** sorry excuses for human beings.

 

[CaptainKiwi]

The thoughts of two different employees...

SWA employee -- *How can WE take care of this company so it will take care of US for OUR careers*

Pipejockey -- *How can I starve this company so I make the most and laugh at how little my peers make. My union will protect my job even if I hardly ever work. Oh No, I just got furloughed. How could this have happened? *

Just an observation...

 

[CA1900]

Yep, because there are only two possibilities there... If you're not giving every last waking hour to the company, I guess you're bleeding it dry.


"With us or against us," eh?

 

[dispatchguy]

We are lucky to have very smart, good people in management that we can trust. They are not over paid and they work hard. They keep coming up with better ways to do things and control cost.

This is a career of luck.

Truer words were never spoken. You had Mr Kelleher who embodied all that SWA is; work hard - have fun. You look at the SWA officer bios, and a lot of them have been at SWA forever - they know what works for SWA. You look at some legacy carrier officer bios, and the CEO has hopped between company and industries that all he truly knows is how to squeeze the employee; and make his ownself rich.

I remember watching something on YouTube about Herb. He said the reason that SWA is as successful as they are is their entire focus.

If you were to ask every airline CEO as to which group is the most important, employees, customers, or shareholders, my guess is that without question, most legacy management would say the shareholders.

At SWA it is the employee; you take care of the employee, they take care of the customer - and a lot of customers getting taken care of takes care of the shareholder.

And for 30+ years, that idea appears to still be working.

 

[Quimby]

So swa has you guys thinking that working your a**es off is merely being productive? We all don't want to work the max FAA flight times of 1000 hours you know? But this what the rest of us must do now in the name of being "productive" so we can compete with swa.



This is what we should all be earning at minimum line guarantee, not for working your a** off at 30 in 7, 100 a month or 1000 a year. Management expects US to work our a**es off in order to earn more, yet it is business as usual for those lazy a** sorry excuses for human beings.

Lots of "shoulds" & "wants" in there. Nothing is perfect in life. If you don't want to fly 1000 hrs a yr, or even 5......then don't. No one is stopping you. Whining about how a company has ruined your life (or expectations) on FI probably won't change things.

 

[satpak77]

Some misunderstations on Futures Market

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.

Home heating oil (and gasoline, etc) follow crude because everything is a derivative product from Crude. If crude is high, so is heating oil. Etc.

I personally, on my own time, trade futures, and thus am familiar with how those markets operate. I do not profess to be a know-it-all, but wanted to provide the below for FYI:

Crude Oil futures can be purchased (and sold/traded) on the futures markets, please see

http://www.nymex.com/lsco_fut_descri.aspx

Crude oil is the world's most actively traded commodity, and the NYMEX Division light, sweet crude oil futures contract is the world's most liquid forum for crude oil trading, as well as the world's largest-volume futures contract trading on a physical commodity. Because of its excellent liquidity and price transparency, the contract is used as a principal international pricing benchmark. Additional risk management and trading opportunities are offered through options on the futures contract; calendar spread options; crack spread options on the pricing differential of heating oil futures and crude oil futures and gasoline futures and crude oil futures; and average price options.

The contract trades in units of 1,000 barrels, and the delivery point is Cushing, Oklahoma, which is also accessible to the international spot markets via pipelines. The contract provides for delivery of several grades of domestic and internationally traded foreign crudes, and serves the diverse needs of the physical market.

A penultimate, financially settled crude oil (WS) contract is available for trading on the CME Globex® platform. The contract is listed for 72 months.

Light, sweet crudes are preferred by refiners because of their low sulfur content and relatively high yields of high-value products such as gasoline, diesel fuel, heating oil, and jet fuel.

As far as SWA trading Heating Oil, it is not because "Crude can't be traded" (Crude can be, but Jet-A futures cannot), but it is because modeling has shown that HO more accurately correlates to Jet-A pricing, and thus probably works out best for SWA business model/future planning. See discussion here

www.kellogg.northwestern.edu/research/fimrc/papers/jet_fuel.pdf

Jet fuel costs have substantially risen over the past several years putting consistent pressure
on airlines to maintain positive cash flows. While the costs are hedgable, there is not a perfect
hedge available in either the over-the-counter or exchange traded derivatives markets. Over-the-
counter derivatives on jet fuel are very illiquid which makes them rather expensive and not
available in quantities sufficient to hedge all of an airlineís jet fuel consumption. Exchange-traded
derivatives are not available in the United States for jet fuel, so airlines must use futures contracts on commodities that are highly correlated with jet fuel, such as crude and heating oil. As such,
airlines employ a variety of strategies ranging from not hedging to fully hedging using a
combination of products.

One reason SWA can hedge so well is that they have the credit to do this, as trading futures contracts requires financial credit worthiness and cash on hand. Other Ch.11 airline simply cannot do this. See:

At the other end of jet fuel hedging spectrum, several major airlines have hedged only a
small portion or none of their expected 2004 fuel consumption, including American, Continental, Northwest, and United. Ironically, these are the airlines that cannot afford the increasing fuel costs
due to severe cash flow constraints. Similar to JetBlue and Southwest, these airlines have
historically hedged their jet fuel costs using heating oil and crude options, swaps, and futures.
However, over the past three years, these airlines have had limited fuel hedging operations because they are unable to generate cash flows to finance futures margin deposits or option premiums. In fact, Delta entered 2004 with fuel hedges in place but was forced to close the positions to generate cash for operations. In addition, United had its fuel hedges canceled by its counterparty due to bankruptcy filing and Americanís credit rating limits the types of contracts it can use

Hope this sheds some light on the at-times-confusing concept of futures and hedging

 

[ivauir]

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

Um, not really. While it does provide profit in the commodities market, it is specifically part of our business plan. One of any airline's major costs is fuel and the price of fuel fluctuates wildly, even when it is not making headlines. If an airline is trying to sell tickets 6 months from now, what should the price be? Should it be driven by the competition or should it be based on what it costs the airline to produce the product?

Several years ago SWA decided it should be based on what it costs to generate the product. In order to do that we needed some way to minimize the fluctuation of fuel prices ... fuel hedges - they take the the guess work out of ticket prices. In this environment they take on a life of their own, but those who consider them out of context miss the point - they are part of the business model.

 

[flint4xx]

Common misconception about how much we work. I go for quality of life as a senior F/O. I flew 560 hours in 2007 and made $127k, with plenty of time off. I give stuff away and another guy can pick up and make more if desired. We have that flexibility on our schedule and bidding.

 

[Flyby1206]

Someone else aready said productivity. It is one of the keys. Another is employee attitude. Most folks here care about the company and even each other. Most try very hard to save the company money when and where ever we can. Back to productivity. We have some ofthe highest paid mechanics in the industry but we only have 4 per A/C. If that many. Everone here is addicted to overtime. Hard work pays off around here.

I think this is a key to the SWA success. The corporate culture is one of hard work and busting your a** to help the company and save a nickel. At my particular airline people taxi slow, fly slow, depart early and arrive late so that they can take an extra buck from the company. There are some who do work hard and bust a**, but they are not appreciated or rewarded in any way.

I am amazed at the employee productivity at SWA, but what else can you do when you are the most productive/highest paid pilots in the industry and profit margins are getting tighter? If you fly anymore per month youll have the whole company timing out in November.

I do worry that SWA is trying to over-extend themselves when it comes to things like international flying opportunities, building new gate areas to entice business flyers, selling tickets at wholesale websites (Orbitz) etc. Their business model has always been the industry underdog who fights against the Evil Empire by flying under the radar and taking a small market share. Is it changing now?

 

[Dumb Pilot]

One reason SWA can hedge so well is that they have the credit to do this, as trading futures contracts requires financial credit worthiness and cash on hand. Other Ch.11 airline simply cannot do this. See:

Hope this sheds some light on the at-times-confusing concept of futures and hedging

Very true, since hedging is a result of your ability of finding the best price thru bulk purchase and that is why companies with a solid bottom line like ANA for example, are able to be 100% hedged for years in advanced. But as the executive that is in charge of the fuel hedging at ANA wrote on an article, "hedging fuel doesn't eliminate the effects of rising fuel costs it only delays them "