Open Letter to All Airline Customers and SWA

[CDub]

Just received this in my email inbox. What I found interesting about it was the fact that SWA was one of the 12 signatories on this open letter. Isn't this sort of thing (i.e. fuel hedging) exactly what is giving SWA one of their biggest advantages in today's market? I understand that everyone will have a hard time if the current trend with fuel continues, but I would imagine that SWA doesn't want this particular problem to disappear too quickly.

Hello Mr. XXXXXX,
[FONT=Tahoma, Verdana, MS Sans Serif]Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now. [/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. [/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation. [/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs. [/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper. [/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]The nation needs to pull together to reform the oil markets and solve this growing problem. [/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com. [/FONT]

[FONT=Tahoma, Verdana, MS Sans Serif]Richard Anderson
CEO
Delta Air Lines, Inc.[/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Gerard J. Arpey
Chairman, President and CEO
American Airlines, Inc.[/FONT]

[FONT=Tahoma, Verdana, MS Sans Serif]Bill Ayer
Chairman, President and CEO
Alaska Airlines, Inc.[/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Dave Barger
CEO
JetBlue Airways Corporation[/FONT]

[FONT=Tahoma, Verdana, MS Sans Serif]Mark B. Dunkerley
President and CEO
Hawaiian Airlines, Inc.[/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Robert Fornaro
Chairman, President and CEO
AirTran Airways[/FONT]

[FONT=Tahoma, Verdana, MS Sans Serif]Timothy E. Hoeksema
Chairman, President and CEO
Midwest Airlines[/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Lawrence W. Kellner
Chairman and CEO
Continental Airlines, Inc.[/FONT]

[FONT=Tahoma, Verdana, MS Sans Serif]Gary Kelly
Chairman and CEO
Southwest Airlines Co.[/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Douglas Parker
Chairman and CEO
US Airways Group, Inc.[/FONT]

[FONT=Tahoma, Verdana, MS Sans Serif]Douglas M. Steenland
President and CEO
Northwest Airlines, Inc.[/FONT]
[FONT=Tahoma, Verdana, MS Sans Serif]Glenn F. Tilton
Chairman, President and CEO
United Airlines, Inc.[/FONT]

 

[Superpilot92]

airlines and companies who actually use the oil are the ones that are supposed to be trading oil. Speculation by outside sources are partially to blame for the spike in oil. The market was heading down so "speculators" started dumping money into commodities. These speculators are piggybacking off of one another rising the price of oil. The margins on oil are way to low. Raise them and you get the small time traders out of the oil market which would help free it up.

Supply and demand and the value in the dollar also play into the rise in cost but increased speculation has raised it by 30-40 dollars a barrel. Speculation is 70% of all trades now in the oil market, thats up from 30% in recent past. Stopping over speculation will help.

We also need to raise the value of the dollar and find alternative energy, drill more, and ween ourselves off of foreign oil before we REALLY find ourselves with a shortage of oil. the cost of energy is killing our economy right now and anything and everything we can do to get the price down and allow this country to recover needs to be done. This should be an eye opener for the country that this is a HUGE problem.

We need a "man on the moon" project in this country and set a time frame to discovering a viable alternative fuel.

(stepping down off of pedestal now)

 

[SWA GUY]

www.AmericanSolutions.com

Sign the petition.

 

[AA767AV8TOR]

Very interesting since SWA has all but destroyed the rest of the airline industry since 911 with their fuel hedging program.

It’s been the key to their success. I wonder what their motive is??

AA767AV8TOR

 

[SWA GUY]

Nice reply. Quit typing on your daddy's keyboard and get back to your kindergarten class.

 

[Ameriagle]

airlines and companies who actually use the oil are the ones that are supposed to be trading oil. Speculation by outside sources are partially to blame for the spike in oil. The market was heading down so "speculators" started dumping money into commodities. These speculators are piggybacking off of one another rising the price of oil. The margins on oil are way to low. Raise them and you get the small time traders out of the oil market which would help free it up.

Supply and demand and the value in the dollar also play into the rise in cost but increased speculation has raised it by 30-40 dollars a barrel. Speculation is 70% of all trades now in the oil market, thats up from 30% in recent past. Stopping over speculation will help.

We also need to raise the value of the dollar and find alternative energy, drill more, and ween ourselves off of foreign oil before we REALLY find ourselves with a shortage of oil. the cost of energy is killing our economy right now and anything and everything we can do to get the price down and allow this country to recover needs to be done. This should be an eye opener for the country that this is a HUGE problem.

We need a "man on the moon" project in this country and set a time frame to discovering a viable alternative fuel.

(stepping down off of pedestal now)

Come on....are you T. Boone Pickins?

 

[Max Powers]

Very interesting since SWA has all but destroyed the rest of the airline industry since 911 with their fuel hedging program.

It’s been the key to their success. I wonder what their motive is??

AA767AV8TOR

Their motive you ask? Well those fuel hedges will not last forever they are planning for their future. Duh

 

[(HCDAW)]

People are missing the point, speculators are an indispensable part of the market. They complete the symbiotic relationship between those who want to minimize risk (Hedgers) and those willing to take it (Speculators). Speculators are taking quite a gamble on the futures market, but for every winner, there is a loser. If you really want to screw up the market let the government get involved.

Southwest began hedging fuel for the same reason that a textile manufacturer buys cotton hedges, to protect themselves against future price volatility in the commodity on which they depend. It's a planning and safety tool. Without speculators willing to assume risk, you can't have hedgers trying to minimize their risk.

The speculators aren't causing the price of oil to go up. The uncertainty in the regions that supply oil, the weak US dollar, and basic supply and demand are causing the price of oil to go up.

 

[bugchaser]

Very interesting since SWA has all but destroyed the rest of the airline industry since 911 with their fuel hedging program.

Wow, by using good established business practices, we are ruining the industry? Maybe the rest of the industry is ruining itself by their inability to operate their businesses. Once again, hedging is not some voodoo magic or shady tactic. Almost all users of commodities use hedging to know their future costs. It seems to me that you are acting like a crybaby because your management were foolish and did not properly run your airline. What SW accomplished with their risk management program should be the standard. Stop blaming SW and start blaming the fools that run your place.

 

[Whine Lover]

"Very interesting since SWA has all but destroyed the rest of the airline industry since...( should read ) Deregulation."

" Wow, by using good established business practices, we are ruining the industry? Maybe the rest of the industry is ruining itself by their inability to operate their businesses."

Correct....a free market can be a real bitch if you don't know what you are doing, especially if you have a very capable competitor who has been successful in driving wages, prices and costs to all time lows.

YKMKR

 

[Quimby]

Very interesting since SWA has all but destroyed the rest of the airline industry since 911 with their fuel hedging program.

It’s been the key to their success. I wonder what their motive is??

AA767AV8TOR

Yup, always someone else to blame.

It's been a piece of the equation in running an airline.

In case you haven't noticed, about the only thing SWA & AA have in common is they're both airlines.

 

[Whataburger]

Very interesting since SWA has all but destroyed the rest of the airline industry since 911 with their fuel hedging program.

It’s been the key to their success. I wonder what their motive is??

AA767AV8TOR

It's like being mad a family because thay had a tornado shelter and you didnt. They survive and you are Dorthy and Toto.
Keep in mind, when you point your finger at someone, you have 3 fingers point back at you.
One ba ba ba ba Billion is a lot of money. I apologize for my company's foresight.

 

[jhill]

People are missing the point, speculators are an indispensable part of the market. They complete the symbiotic relationship between those who want to minimize risk (Hedgers) and those willing to take it (Speculators). Speculators are taking quite a gamble on the futures market, but for every winner, there is a loser. If you really want to screw up the market let the government get involved.

Southwest began hedging fuel for the same reason that a textile manufacturer buys cotton hedges, to protect themselves against future price volatility in the commodity on which they depend. It's a planning and safety tool. Without speculators willing to assume risk, you can't have hedgers trying to minimize their risk.

The speculators aren't causing the price of oil to go up. The uncertainty in the regions that supply oil, the weak US dollar, and basic supply and demand are causing the price of oil to go up.

They are not asking Congress to stop users of the product to stop speculating or hedging. They want the non user to get out of the oil speciulation market.

 

[Superpilot92]

Bskin,

That's more or less true in a well regulated open market. The key is transparency. The Hunt Bros tried to corner the silver market, when other speculators saw the huge position the Hunts held they realized the price was artificially high and they dumped their holdings. The Hunts were burned to the tune of $2Billion. Thats the traditional risk to cornering the market. What happens if non traditional players with massive amounts of money enter the market? Now add in a market where there is no transparency, i.e. you can not see who holds what or who's trading with whom. You get wash sales. What if these new players, all playing the same game (a herd mentality where no one company corners the market but as a group they have), own 70% of all existing futures contracts? As they trade amongst themselves (no risk in a wash sale) they are holding these contracts out of the market( artificial limiting of supply). The true speculator (who intends to take delivery) must enter the market and bid for what is available at that time. He must his business requires it. Thats trucking companies, airlines, refineries, etc. With these daily trends he can not sit back and hope that fear of a contracts expiration will cause a drop in price. Oil in normal trading is far to liquid for that. I'll show you that supply isn't the issue, I'll show you that the weak dollar doesn't cover current price either. What have been the effects of the Commodities Modernization Act? Why does the Intercontinental exchange exist? Who trades there and why don't those investment banks etc trade on the NYMEX? Please don't throw out cheap easy stuff like it's the fault of leftists, environmentalists, or the scapegoat of politicians. Stick to the point and explain the price.

THIS IS A GREAT POST ON THE SUBJECT

 

[Freeze_gopher]

People are missing the point, speculators are an indispensable part of the market. They complete the symbiotic relationship between those who want to minimize risk (Hedgers) and those willing to take it (Speculators). Speculators are taking quite a gamble on the futures market, but for every winner, there is a loser. If you really want to screw up the market let the government get involved.

Southwest began hedging fuel for the same reason that a textile manufacturer buys cotton hedges, to protect themselves against future price volatility in the commodity on which they depend. It's a planning and safety tool. Without speculators willing to assume risk, you can't have hedgers trying to minimize their risk.

The speculators aren't causing the price of oil to go up. The uncertainty in the regions that supply oil, the weak US dollar, and basic supply and demand are causing the price of oil to go up.

HCDAW,

We are not missing the point, Southwest's fuel hedges are a classic example of the effective and traditional role of speculation. They are mitigating price. This is a role that the markets were created for. That is just good business.
What you are missing is the role of massive financial institutions who are not mitigating price. Please take a look at the comments I made above that Superpilot was kind enough to quote. Answer those questions. That is the discussion, we are not actually even discussing speculation, that is the point that people are missing.

 

[bugchaser]

Southwest's fuel hedges are a classic example of the effective and traditional role of speculation

Sorry, wrong again!!!

How hard is it for some of you to get that what SW does is not and never will be speculation. What they do is to manage risk in the market. To not have any hedge positions and be a purely cash buyer would be the ultimate form of speculation.

What is needed is not a ban on speculation, but some limits put in place to stop the big hedge funds, pension plans, etc. from dumping huge amounts of dollars into the commodity markets as a kind of hedge against the weak dollar. If all speculation was stopped, there would be no ability for end users and producers to use the markets as intended to smooth out prices. This is not only a problem in energy markets. Other commodity users are suffering as well. The real problem that most politicians don't talk about is the weak dollar. With a strong dollar, there would be less incentive for investors to put money into the commodity markets.

 

[ASADFW7]

I am sorry that oil prices are not high because of SWA hedging. They are a small company. They only fly about 8 to 9 percent of domestic traffic.

 

[Freeze_gopher]

Sorry, wrong again!!!

How hard is it for some of you to get that what SW does is not and never will be speculation. What they do is to manage risk in the market. To not have any hedge positions and be a purely cash buyer would be the ultimate form of speculation.

What is needed is not a ban on speculation, but some limits put in place to stop the big hedge funds, pension plans, etc. from dumping huge amounts of dollars into the commodity markets as a kind of hedge against the weak dollar. If all speculation was stopped, there would be no ability for end users and producers to use the markets as intended to smooth out prices. This is not only a problem in energy markets. Other commodity users are suffering as well. The real problem that most politicians don't talk about is the weak dollar. With a strong dollar, there would be less incentive for investors to put money into the commodity markets.

Who do you think speculators are? Everybody that needs to buy large amounts of a raw material for end use are speculators. That is why these markets exist in the first place. All Airlines, large trucking concerns, refineries, or anyone else that uses that much of a commodity to make their business go are speculators. They are trying to mitigate price and quantify their costs in advance. The producer wants to know in advance that his product will be consumed at an acceptable price. The role that investment firms play is not the sole source of speculation.
Did you read my last two posts? No one is talking about ending speculation, it is a very valuable tool. Hence my comment that speculation isn't even what we are talking about.
We are talking about manipulation. You are quite correct that regulation is necessary, but even at that we still are not talking about traditional markets (NYMEX etc). We are talking about the Commodities Futures Modenization Act and the Emergence of the Intercontinetal Exchange.
The movement of money managers into commodities markets to hedge against inflation risk is a valid business strategy and is nothing new. But again that is not what we are discussing. The Intercontinental Exchange has no transparency, very few regulations (it has been nick named the wild west by Wall Street). Again Speculation is not the issue, manipulation is.
Sorry, I am not wrong. Please, go back read the posts that I made previously, and honestly try and answer the questions that I have posed. If you need info about supply and demand or the role of the dollar with regard to oil prices just ask, I'll be glad to point some things out.

 

[bugchaser]

Hey frozen gopher, until you understand what speculators are, we have nothing to talk about. End users and producers are not speculators. Nothing speculative at all about setting a hedge to lock in a price. You know what price you will pay no matter what happens to the underlying commodities cash price. Going long or short the commodity is speculating that the price will go up or down. Hedgers do not care if the cash price goes up or down. They are not speculators!! I spent a few years in the commodities industry and don't think I have forgotten it all. If you need some help comprehending any of this let me know.

 

[waveflyer]

well said-- freeze gopher-- youre getting caught up in rhetoric that 'sounds' true. The speculators are a big percentage of the problem. Regulation isn't there to do away w/ a free market-- but to make sure that the market exists w/o corruption. It's part of the balance. But maybe you all have grandmothers/grandfathers that didn't grow up in the depression or didn't share w/ you the causes of that.

Anyone else see this commercial? I saw the one post on him, but what do ya'll think?
http://www.youtube.com/watch?v=R2bOug1d20c


here's an article on it:

ENERGY: Oilman pitches wind power
T. Boone Pickens is putting big money behind his plan to cut crude oil imports.

By Andy Vuong
Denver Post
Published on: 07/12/08
Denver —- Legendary Texas oilman T. Boone Pickens compares America's reliance on foreign oil to a drug addiction and believes the cure will come in the form of wind farms and natural-gas-powered vehicles.
In Denver on Thursday to speak at an energy conference, Pickens detailed his plan to cut the country's oil imports by at least a third in 10 years.

He proposes a massive increase in electricity produced from wind farms, building enough to supply 20 percent of the nation's electricity and replace natural gas as a primary generating source. Natural gas would instead be used as a transportation fuel, cutting demand for gasoline.
The lofty plan faces several obstacles, including the lack of transmission lines for new wind power and the availability of natural gas vehicles and commercial stations to fuel them in the United States.
But Pickens, worth an estimated $3 billion, has pledged $58 million to promote the plan through 2008.
"The thing that has not happened in this country is we have not been pressed to do anything," said Pickens, 80, in an interview. "The reason we haven't is there's always been cheap oil."
With the price of oil hitting $147 a barrel Friday and possibly on target to hit $200 next year, he said the time has come to make a move.
Pickens is in the midst of a nationwide media blitz to promote his plan. The renowned corporate raider, who plans to build a 4,000-megawatt wind farm in Texas at a cost of up to $12 billion, said he didn't hatch the Pickens Plan for profit.
"I've got enough money," he said. "I don't need to make any more money, but I don't go into things to lose money."
He said the plan could cut the amount the country spends annually on foreign oil from $700 billion to $400 billion.
George Douglas, a spokesman for the National Renewable Energy Laboratory in Golden, Colo., said Pickens' plan is "not impossible" but has to overcome several challenges. "The big challenge is manufacturing," Douglas said. "We don't have the manufacturing capacity in the country to build that many wind turbines."
Douglas said the proposal also needs transmission lines to carry power from wind farms, generally built in desolate areas, into neighborhoods.
The Department of Energy released a report in May that said the nation could reach 20 percent wind energy by 2030. Pickens wants to reach that goal before 2020 by adding 200,000 megawatts of wind power. At the end of 2007, the U.S. had 16,818 megawatts of wind capacity, according to the American Wind Energy Association. One megawatt can power 300 homes.
Pickens spokesman Jay Rosser noted that even though there are only 140,000 natural gas vehicles in America, 8 million exist worldwide.