Is Fuel Hedging Cheating?

[atafan]

Congrats to SWA and CAL for your profitable quarters!

Why do so many on this board think that fuel hedging is cheating regarding profits that SWA churns out? Fuel Hedging is a strategy used just like any other strategy that their business plan calls for. Good Management not cheating.

I also hear on this board that SWA will be in trouble once the fuel hedging isn't as effective. SWA raises fares, a no brainer. SWA is where they are because their management thinks at least four steps ahead of most every other airline, CAL is pretty amazing as well.

I'm no SWA cheerleader, I'm sure they would sink ATA if it benefits them, without even a second thought. I do admire their style of management and enjoy studying good management.

 

[G100driver]

Cheating no this is America ... However, I would be interested to hear what guys who are really in the know think about how hedging effects the market in general. Does it raise prices for the rest of us?

 

[Flyby1206]

I dont think many of us consider SWA a 'cheater' because of fuel hedging. We all wish our airlines would have done the same thing they have. SWA mgmt scored a big hit that allowed them to have an advantage that other airlines dont have. We are all waiting for the fuel hedging to end so that SWA has to raise fares, which will put SWA ticket prices a lot closer to the rest of the industry prices. When this happens we all will have the same basic costs (labor/fuel) and will be forced to provide a 'better product' in order to gain customers.

 

[shagadelic]

For the last time, fuel hedging does NOT END. It is a continuous process. We have already hedged some fuel in 2012 at 61 bucks a barrel. As long as oil continues to climb, it will be a good deal. If oil is 50 bucks a barrel in 2012, then it's not a good deal. They will continue to hedge whenever they think the price is good. I hope they continue to be right.

Hedging takes money now, that's why so many don't do it. We have money, so we continue to hedge. It's that simple.

 

[bvt1151]

Fuel hedging only works when oil prices stay the same or go up. Otherwise they'll be paying more for gas than the competition.

 

[Flyby1206]

Ahhhhh thanks for the explanation shag, I was definitely clueless.

 

[B6Driver]

No, just very smart business.

 

[JerkyHerky]

Cheating ?????

Hedging is a business expense just like insurance. Is it cheating to pay insurance premiums then when your house floods the insurance companies pay you money to rebuild your house? Fuel hedging costs money up front to enter into the aggreement, that's why the "distressed" carriers can't do it. It's not just fuel that can be hedged, just about every commodity can be hedged. As long as the amount that can be saved through long term contracts is greater than the amount of money the company has to pay up front for the hedge, hedging is good.

 

[canyonblue]

Fuel hedging only works when oil prices stay the same or go up. Otherwise they'll be paying more for gas than the competition.

No, you just sell the Hedges. No wonder we are the leading airline in hedging fuel, we are the only pilot group that understands how it works. Fu#k!!!!!! uke:

 

[woog315]

No, you just sell the Hedges. No wonder we are the leading airline in hedging fuel, we are the only pilot group that understands how it works. Fu#k!!!!!! uke:

You obviously won't be selling the hedges for the same price you bought them- who would buy short term hedges for a higher than market price? So you end up eating the loss on the hedge plus paying market price for fuel. I.E.- you pay more. Fuel hedging isnt a no-lose street like you seem to think it is- economics 101