Doom and Gloom in the Chicago Tribune

[TriStar_drvr]

Walked down the street from my crashpad and picked up a copy the Tribune to read with my morning coffee. Today's bussiness section headline: United wants more givebacks. Below that was a subtitle: USAirways gets court approval to cut pay by 21%. In the middle of the page, below a picture of an ATA 737-800 was an article titled: 156 to lose jobs at ATA Airlines. And finally, on the left column was a blurb: Delta issues warning on bankruptcy.

After reading this, my mood turned as gloomy as the weather here in Chicago. I have no answers to what ills the industry. Obviously fuels costs are hurting everyone now. (My wife made the comment that whoever sold SWA fuels hedges at $31 a barrel for 2006 should be fired. Congrats to SWA for having foresight.). I thought about that as I filled up my truck with $2.33 a gallon gas on my way to LAX yesterday.

Anyway, I'm just venting. I may very well be out of a job in a few months. I'm just frustrated that I have no control of the future of my company. Oh well, back to updating my logbook.

Good luck to all in the industry. we sure are going to need it...

 

[jobear]

I did pretty much the same thing here in Milwaukee (Tribune reader) then filled up my little Mazda to the tune of $30.30 now I can't afford the Coffee .

Jobear
God all I want for Christmas is an Oil Well

 

[chperplt]

For the uninformed... Does an airline hedge fuel from an insurance company or from the fuel companies themselves?

 

[chase]

In actuality jet fuel is not a commodity in which "futures" are sold. However, airline companies purchase instead "home heating oil" futures. Why is that?

This is the closest type of petroleum product that matches up to jet fuel when it comes to production/refinery end product, in terms of amount. Therefore a barrel of oil produces nearly the same amount of jet fuel after going through two very different refinery processes. As to the actual process of where/whom purchases the oil for the various companies I would assume each company uses its own techniques for discovery the best way to trade/purchase these options & uses market forces to find the least costly future. I was explain this some time ago so my memory stick maybe a little rusty, if there is an update to this feel free to chime in.

I don't know for sure the original innovator in the airline industry who decided to use this technique to secure fuel for future purchases but over the last 7 years Gary Kelly & the bright folks in the finance department have fine tuned it to a science....lucky for SWA he is now the CEO!! Hope that helps.

 

[Ty Webb]

For the uninformed... Does an airline hedge fuel from an insurance company or from the fuel companies themselves?

I don;t know for a fact, but I would guess that it is either in the Commodities Market (like the Chicago Board of Trade) or they are buying future contracts for delivery from the distributors.

 

[SWA GUY]

Jet fuel is not traded on the Mercantile Exchange. Jet fuel is bought from any supplier you choose. That being said, if you want to offset your jet fuel costs you may choose to buy futures of crude, home heating oil, butane, isobutane, propane, or even any other commodity that is traded. Like corn or orange juice for example.

If you are good at buying futures, or predicting the future, you will make money on your futures purchases as you sell them for a profit. Now, take your profit from whatever futures you bought and then sold, and apply it to the cost of your jet fuel. This in turn lowers the expense of your jet fuel.

All I need is a crystal ball.......

Can I borrow somebodys? I'll split the profits with you right down the middle..60/40

 

[ATRCAPT]

Doom and Gloom

Did the same thing here in SEA. I've already had to give up my Starbucks coffee, and make do with the local. What more can they take from me!?! Anyone have the number of that truck driving school?

 

[Yahtzee]

[font=TimesNewRoman,Bold]Fuel Hedging in the Airline Industry: The Case of Southwest Airlines[/font]
[font=TimesNewRoman,Bold][/font]By Dave Carter, Dan Rogers, and Betty Simkins

http://207.36.165.114/NewOrleans/Papers/8302208.pdf

See page six for: [font=TimesNewRoman,Bold]Frequently Used Fuel Hedging Instruments by Airlines
[/font]