Fuel Hedges will backfire on some airlines

[lowecur]

It seems some carriers will lose the premium they paid on the hedges which can be considerable. That can be offset if the price of oil decreases enough to make it a wash, but the carriers that hedged the least will help their bottom line the most.

SWA is not in that situation, although at some point the cost of the hedge will still intersect the falling price of oil. SWA will have to settle on lower hedge profits, but the reduced cost of oil should keep their cost of fuel fairly in line with projections.....I think.

imp:

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060913:MTFH26632_2006-09-13_20-14-23_N13426701&type=comktNews&rpc=44

 

[scoreboard]

Lets not forget that as hedge "savings" decrease, the margin on operations increase exponentially, given the same fare structure. Lets hope we don't see another round of fare wars, Oops, to late.

http://www.southwest.com/hotfares/hotfares_air.html?lnk=060912_systemwide

 

[Pat Fabin]

Lets remember that Fuel Hedging isn't all about making bets on fuel prices Vegas-style...its about taking some of the volatility out of your fuel costs, getting you closer to a fixed cost so that you can plan more effectively.

-PF

 

[Fly-diver]

although at some point the cost of the hedge will still intersect the falling price of oil.

uhhh... kind of depends on the cost of the hedge and how low the price of oil falls, right?

 

[labbats]

Oil is going to rise! The sky is falling!

Oil is going to fall! The sky is falling!

 

[lowecur]

uhhh... kind of depends on the cost of the hedge and how low the price of oil falls, right?

The way da fight were going he woulda win, he woulda win da way the fight were going. Thank you Joe, good night.

imp:

 

[Fly-diver]

The way da fight were going he woulda win, he woulda win da way the fight were going. Thank you Joe, good night.

imp:

So... you make a foolish statement then follow it up with gibberish. Brilliant!

 

[Purpled]

Lets remember that Fuel Hedging isn't all about making bets on fuel prices Vegas-style...its about taking some of the volatility out of your fuel costs, getting you closer to a fixed cost so that you can plan more effectively.

-PF

In theory, but you wouldn't plan to have higher costs than you could have. Best case, you lose your advangtage over the competition(that the hedges had given you.) None-the-less, lower oil/fuel benefits the industry as a whole.

 

[lowecur]

So... you make a fundamental statement then follow it up with fundamentalism. Brilliant!

I agree!

imp:

 

[scoreboard]

delete

 

[PunchTheClown]

I cant wait till these hedges run out. Then my management can come to me again for pay concessions and then a couple of weeks later then can be awarded a bonus.

 

[Ty Webb]

It seems some carriers will lose the premium they paid on the hedges which can be considerable. That can be offset if the price of oil decreases enough to make it a wash, but the carriers that hedged the least will help their bottom line the most.

I'm not too sure about that. A hedge is just that, a hedge. At AAI, for example, we are hedged, if memeory serves me correctly, in the neighborhood of 25%. So, we ride out the extremes, but a rising tide lifts all ships.

 

[FlyBoeingJets]

Airlines drifting down on higher oil futures

By Padraic Cassidy
Last Update: 9:36 AM ET Sep 14, 2006

NEW YORK (MarketWatch) - Shares of airline operators were modestly lower Thursday, as crude oil futures rose for a second day. The Amex Airline Index was last off 0.3% at 48.98 points.


Lowecur,

This point of view used to keep coming up in upper management at airlines.....

"If we all refuse to buy hedges then none of us will get get roasted (read fired) by our BODs for wasteful hedge spending"

For too many airline management types its all about worrying about losing a lucrative job, not about doing the job well.

The practice is sound. Those with hedges at higher strike prices paid less for them and hedge a smaller portion of their fuel. Not much risk at all.

I'm surprised you haven't learned the lesson too.

 

[TexaSWA]

Oil is going to rise! The sky is falling!

Oil is going to fall! The sky is falling!

right on.