Could Southwest's run of profitability be coming to an end?

[whatitdoing?]

It's about time that there's a level playing field with the majors.......good luck Southwest.

 

[whymeworry?]

SW and their fuel hedging strategies have single-handedly undermined this industry. Why play on a level field when your competitors are paying 3-4 times the price you do for fuel?

Let the SW CEO start earning his salt by learning how to run an airline without the crutch of fuel hedging. If SW has to finally face the music, this will be good for us all. SW will be forced to charge for the true and current cost of an airline seat, instead of holding us all hostage by undercutting the market, while the weak (Skybus, VA and the like) die a slow death since they are paying the same fuel charges we all are (but are also undercutting). Gee, what a novel idea!

JBlu, AirTran, Frontier, VA, SkyBus had better wake up. Charging customers below the cost of the product will not make you grow and will most certainly destroy any dream of long-term viability you may have. Plain and simple, it's a really stupid way to run a business.

SW hasn't had to worry about their business model until now. They are still paying half the cost as we all are out to 2012 so we're not out of the woods yet. They could continue to undermine the market for another 4 years. But why do that when you can make money? Come on SW, get it together and start running a proper business. We know you won the hedge bets already. Now let's move on.

 

[bravodude]

SW and their fuel hedging strategies have single-handedly undermined this industry. Why play on a level field when your competitors are paying 3-4 times the price you do for fuel?

Let the SW CEO start earning his salt by learning how to run an airline without the crutch of fuel hedging. If SW has to finally face the music, this will be good for us all. SW will be forced to charge for the true and current cost of an airline seat, instead of holding us all hostage by undercutting the market, while the weak (Skybus, VA and the like) die a slow death since they are paying the same fuel charges we all are (but are also undercutting). Gee, what a novel idea!

JBlu, AirTran, Frontier, VA, SkyBus had better wake up. Charging customers below the cost of the product will not make you grow and will most certainly destroy any dream of long-term viability you may have. Plain and simple, it's a really stupid way to run a business.

SW hasn't had to worry about their business model until now. They are still paying half the cost as we all are out to 2012 so we're not out of the woods yet. They could continue to undermine the market for another 4 years. But why do that when you can make money? Come on SW, get it together and start running a proper business. We know you won the hedge bets already. Now let's move on.

You are a true fool, All the legacy ceo had to do when he came out of BK is buy the hedges but they didn't. Don't blame the sorry state of the majors on us.

 

[bravodude]

Cockiness and naivety are pilot attributes I do not admire. These are found in larger abundance at the aforementioned airlines than most others. I have friends at both these operations who are good, sophisticated, humble people. Unfortunately there are getting to be more and more of the other kind.

You mean the type of cockiness that the legacy pilots displayed durring their fat dumb and happy years when they would jumpseat on us and then proceed to convince us why we should leave SWA and go over to delta, ual etc.

 

[ivauir]

S But why do that when you can make money? Come on SW, get it together and start running a proper business. We know you won the hedge bets already. Now let's move on.

What you fail to recognize is that the fuel hedges are part of the business model. We do runa proper business, hence the profits.

 

[whymeworry?]

You are a true fool, All the legacy ceo had to do when he came out of BK is buy the hedges but they didn't. Don't blame the sorry state of the majors on us.

First, I completely agree that the legacy airlines should have hedged. It is outrageous they didn't. There is NO EXCUSE for it. All airlines should have used their high-priced exec teams to bone-up on commodities trends. IMO, our analysis and purchasing departments should be better than the traders and speculators on the floor. They didn't. Only ONE airline did. ONE. SW. SW continues to use that bet to run it's carrier. Then they complain (your CEO stating the carrier only made money due to it's hedging strategies) when they can't make money.

Guess what? This isn't just a "majors" thing. Nobody but SW hedged. AT didn't, FRNTR, JBLU, Spirit didn't. So it is not just majors that missed the hedge boat.

Second, Sorry state of majors? Look around, Bud. All airlines are hurting (Frontier and JBLU trading at all time lows, VA losing money for another 3 years). Most of the majors already shored up their balance sheets by debt renegotiation or ch11 but they all have in excess of $3 billion in cash. That is hardly a sorry state. In fact, it is because of their business model that they CAN MAKE MONEY WITH HIGH-PRICED FUEL (read: Int'l Routes). By contrast, SW CANNOT MAKE MONEY WITHOUT FUEL HEDGING. Well, Genius, eventually that hedging will expire. What are your plans then? Are you going to accept paycuts in order to subsidize the flying public? Wake up, smarten up. Demand your CEO get in the game and get competitive in the real world of running an airline. You can't hedge forever and high fuel isn't going away... ever. Eventually, even mighty SW will have to charge for the COST of an airline seat.

Last, you don't know me or my background. Tell me again why I am a fool? Wtf do you know about airline finance?

 

[whymeworry?]

What you fail to recognize is that the fuel hedges are part of the business model. We do runa proper business, hence the profits.

Great, then I can assume your guys are buying contracts at $111 this week? Since you are implying SW will always get it right on calling fuel prices?

You guys are advocating your management using hedging as the ONLY way to run a PROFITABLE business. Take the blinders off. You cannot make money on the prices you are charging for tickets WITHOUT HEDGING.

And no, I don't fail to recognize hedging as proper business. On the contrary, I am floored that US airline managements got away with NOT hedging. Headds should've rolled. Hedging is simply part of any risk management portfolio. And fuel costs are a huge business risk in any transportation business. Why every airline, except SW, missed the mark on something so rudimentary is beyond me. That said, hedging is simply commodities trading. You cannot win using that strategy forever. Do some research and you'll see the investment archives are littered with multi billionaires who lost it all by getting stuck on the wrong side of a commodities/ currency trade.

As I've said, you can't use hedging as the sole way to remain profitable forever. But if you want to, have at it. Don't start crying when your CEO asks for paycuts in 2 years though.

You can go back to drinking your SW kool-aid now. No need to chime back with some genius remark about what an idiot major driver I am or how great SW is. You'll all be fine. Nothing to worry about. I'm sure I've got it all wrong and you've got it all right.

Flame away biatchez!

 

[Quimby]

SW and their fuel hedging strategies have single-handedly undermined this industry. Why play on a level field when your competitors are paying 3-4 times the price you do for fuel?

Let the SW CEO start earning his salt by learning how to run an airline without the crutch of fuel hedging. If SW has to finally face the music, this will be good for us all. SW will be forced to charge for the true and current cost of an airline seat, instead of holding us all hostage by undercutting the market, while the weak (Skybus, VA and the like) die a slow death since they are paying the same fuel charges we all are (but are also undercutting). Gee, what a novel idea!

JBlu, AirTran, Frontier, VA, SkyBus had better wake up. Charging customers below the cost of the product will not make you grow and will most certainly destroy any dream of long-term viability you may have. Plain and simple, it's a really stupid way to run a business.

SW hasn't had to worry about their business model until now. They are still paying half the cost as we all are out to 2012 so we're not out of the woods yet. They could continue to undermine the market for another 4 years. But why do that when you can make money? Come on SW, get it together and start running a proper business. We know you won the hedge bets already. Now let's move on.

How level is the field when multiple BK's have propped up many airlines? Wipe those debts out.........does wonders, right?

Should an airline have liquidated in the last few years to "right size" the seating & pricing capacity?

 

[UALjan15]

Whymeworry--

You're simply throwing around some B.S. and mere tidbits of a much more complex story. I'm not going to claim to be an expert here, and I didn't even stay at a Holiday Inn Express last night, but here's some of the missing parts of your rant:

• It's not true that only SW hedged fuels. It is true that they did far better at it than everyone else. One reason why is that ratings of their corporate debt made it possible to do futures deals that no other airline could swing. All of the airlines with sick balance sheets (that would be most of the rest of them) didn't have access to those same hedges.
• When you claim that SW cannot earn money without these hedges, you are assuming that without them, they wouldn't raise fares to get to profitability. I believe that they absolutely would.
• We've been listening to guys like you that say "just wait until the hedges run out" since about 2004. It seems that they've practiced a consistent policy of hedging since then, and I doubt they are going to stop just to give all of the other airlines a break. True, they are not hedged at $25/bbl anymore, but they don't need to be. If they can use their good rating and expertise to consistently get a 40% discount on fuel over their rivals, then they've won the game before a wheel is ever turned.
• SW doesn't price its product to absolutely maximize fares and profits as you would seem to prefer. Instead, they choose to offer a lower fare that will give them a steady (almost boring) profit, quarter after quarter. Maybe that's why my LUV shares never budged in 4 years....
• I don't think SW has "won" on every hedge bet (I think I've read about write-downs they've taken for hedging losses). But there are lots of eggs, and lots of baskets, and as long as fuel trends up in the long run, they do well overall. I've heard it stated many times that the goal of the program is not only to secure lower prices, but mostly to define those prices well in advance so that they become more "fixed" than "variable."

 

[Quimby]

Great, then I can assume your guys are buying contracts at $111 this week? Since you are implying SW will always get it right on calling fuel prices?

You guys are advocating your management using hedging as the ONLY way to run a PROFITABLE business. Take the blinders off. You cannot make money on the prices you are charging for tickets WITHOUT HEDGING.

And no, I don't fail to recognize hedging as proper business. On the contrary, I am floored that US airline managements got away with NOT hedging. Headds should've rolled. Hedging is simply part of any risk management portfolio. And fuel costs are a huge business risk in any transportation business. Why every airline, except SW, missed the mark on something so rudimentary is beyond me. That said, hedging is simply commodities trading. You cannot win using that strategy forever. Do some research and you'll see the investment archives are littered with multi billionaires who lost it all by getting stuck on the wrong side of a commodities/ currency trade.

As I've said, you can't use hedging as the sole way to remain profitable forever. But if you want to, have at it. Don't start crying when your CEO asks for paycuts in 2 years though.

You can go back to drinking your SW kool-aid now. No need to chime back with some genius remark about what an idiot major driver I am or how great SW is. You'll all be fine. Nothing to worry about. I'm sure I've got it all wrong and you've got it all right.

Flame away biatchez!

is it safe to say you don't like SWA?