Southwest Hedges

[jumppilot]

I'm suprised I haven't seen anything on the boards about this.

With the price of oil dropping (and with things probably getting a lot worse, I wouldn't be suprised if it got to $40), is Southwest's hedge advantage over?

Is anyone at Southwest worried they have to start competiting on a level playing field, something they've been immune to these last few years?

 

[frog_flyer]

Did you miss the part where SWA posted their first quarterly loss in 17? years on the write-down of their hedges?
​

 

[firstthird]

There is a cost but it isn't as bad as it might seem.

We are hedged 75% for 2009 at 75 dollars a barrel. If oil stays below 75, then it won't help us and the money we spent to buy those hedges was wasted. the good part is, we wouldn't have bought them if we couldn't make money at 75, so we should make a good deal at 50 a barrel. that is the theory anyway.

I hope we are continuing to hedge now that oil is lower for further out in the future.

the loss was a GAAP loss, which was no more 'real' than our large profits based on GAAP last summer. but if wall street wants to say our streak has ended, fine by me. Gary oughta be managing for 10 and 20 years out, not next quarter's profit or loss.

I suspect we'll do just fine on a 'level playing field.' but I guess we'll have to see. I'd be happy if the industry settled down a little with less gut wrenching upheaval all the fricking time.

 

[JetDude]

There is a cost but it isn't as bad as it might seem.

We are hedged 75% for 2009 at 75 dollars a barrel. If oil stays below 75, then it won't help us and the money we spent to buy those hedges was wasted. the good part is, we wouldn't have bought them if we couldn't make money at 75, so we should make a good deal at 50 a barrel. that is the theory anyway.

I hope we are continuing to hedge now that oil is lower for further out in the future.

the loss was a GAAP loss, which was no more 'real' than our large profits based on GAAP last summer. but if wall street wants to say our streak has ended, fine by me. Gary oughta be managing for 10 and 20 years out, not next quarter's profit or loss.

I suspect we'll do just fine on a 'level playing field.' but I guess we'll have to see. I'd be happy if the industry settled down a little with less gut wrenching upheaval all the fricking time.

True that the loss was a GAAP loss on the unrealized gain/loss of the hedge positions. So right now, when someone talks about SWA posting a loss it's currently a fictious loss. HOWEVER... when the hedge positions are closed and oil is below what we paid, this will translate into an actual (realized) loss unless revenue is raised to make up for the difference. While the hedges are used to fix (most of) the fuel costs to mitigate our exposure to a variable market, if the revenue plan was to use hedge profit(s) to lower the amount of revenue needed then the loss will be realized.

 

[shootr]

This is beyond my limited understanding, but I also have heard that we have insurance on our hedges that takes care of our interests if heating oil goes below our hedged investments. Keep in mind the hedges are on heating oil, not crude. Anyone with a better grasp on these issues with a better explanation?

shootr

 

[ASADFW7]

Swa CASM is much lower so now they have a real advantage. SWA is not the only carrier who hedge next year either. the economy is a much bigger fator to consider for next year, reduced demand.

 

[Fit59]

we wouldn't have bought them if we couldn't make money at 75

That alone should end this thread!

 

[AAflyer]

Swa CASM is much lower so now they have a real advantage. SWA is not the only carrier who hedge next year either. the economy is a much bigger fator to consider for next year, reduced demand.

However the loads have been dropping and will drop, for everyone. While oil is dropping I think the BIG concern will be the passengers having MONEY to actually fly in this economic climate.

Good Luck to us ALL,

AAflyer

 

[skydash]

However the loads have been dropping and will drop, for everyone. While oil is dropping I think the BIG concern will be the passengers having MONEY to actually fly in this economic climate.

Good Luck to us ALL,

AAflyer

That is the absolute truth....all other points are pretty much moot without people buying tickets.

 

[ricj41]

There was a report early last month on cnbc.com that tracked airline travel during the last several recessions. All the way back to the early 80's. It showed a 6% drop off during the recessions. Most airlines cut over 10% from this summers peak travel period. Fuel at my company was 55% of our costs in July. We are now paying 50% less for jet fuel then we were then. (Our release shows what we pay per gallon in the destination and arrival city). With oil continuing to fall I am sure the cost will continue to drop.
So basically our costs have dropped 25% and we have cut 10% of our capacity. I think every airline will be okay.


P.S. Unless management screws it up.

 

[Tejas-Jet]

Sorry...duplicate post

 

[Tejas-Jet]

Is anyone at Southwest worried they have to start competiting on a level playing field, something they've been immune to these last few years?

I don't know about you but in the part of the US that I was raised in, nobody is guaranteed a "level playing field".

Want proof? Just ask the US Steel workers, the railroad employees, the Detroit Lions, or the laid off UAW workers in Flint MI. Ask how the "level playing field" worked for them.

Usually the company that competes the best is the one that shows the higest profits. When I'm running in a race, I don't slow down just so you can catch up.

In the history of Southwest Airlines, we have never played on the "level playing field" that you speak of...and hopefully we never will. And, just as your company shouldn't worry about SWA, I would also hope that all our efforts and energies here at SWA are directed towards taking care of SWA first...and then worrying about the others...

...over a beer at the Friday afternoon Deck Parties.

 

[Double Shot]

Hey Dave!!

 

[AA767AV8TOR]

For what’s it worth, I believe last summer’s scare for oil will turn out to be a good thing in the long run for the industry. It forced an early hand for the airlines to seriously think and then take action about reducing capacity and protecting yield.

The airlines are way ahead of the curve this time around. Usually it’s the other way around when we’re adding tons of capacity and then having to stop midstream, turn the battleship around, and do the drastic cut and furlough all at one time; basically going from full afterburner to idle in one year.

The X factor will be how long the airlines can hold onto the fare increases of last summer. Once the loads start dropping off, the tendency will be to drastically cut prices. We shall see.

As usual, it will be an interesting next 12 months. Good luck to us all.

AA767AV8TOR

 

[rajflyboy]

However the loads have been dropping and will drop, for everyone. While oil is dropping I think the BIG concern will be the passengers having MONEY to actually fly in this economic climate.

Good Luck to us ALL,

AAflyer

I havent seen many empty seats on any of the airline flights I have been on lately!!!

 

[StopNTSing]

For what’s it worth, I believe last summer’s scare for oil will turn out to be a good thing in the long run for the industry. It forced an early hand for the airlines to seriously think and then take action about reducing capacity and protecting yield.

The airlines are way ahead of the curve this time around. Usually it’s the other way around when we’re adding tons of capacity and then having to stop midstream, turn the battleship around, and do the drastic cut and furlough all at one time; basically going from full afterburner to idle in one year.

The X factor will be how long the airlines can hold onto the fare increases of last summer. Once the loads start dropping off, the tendency will be to drastically cut prices. We shall see.

As usual, it will be an interesting next 12 months. Good luck to us all.

AA767AV8TOR

Hey, you forgot to blame it all on SWAPA.

 

[JumpJetter]

Here is the latest fuel hedge stuff I could find.

http://in.reuters.com/article/governmentFilingsNews/idINN3039146220080804

FACTBOX-U.S. airlines' fuel hedging positions
Mon Aug 4, 2008 10:01pm IST

Aug 4 (Reuters) - U.S. airlines have hedged the price of
oil to protect themselves from rising fuel costs, but some may
end up losing money on hedges if the price of crude oil
continues to decline.

U.S. crude oil futures CLc1 traded around $120.50 per
barrel in New York on Friday, down from an all-time high over
$147 in mid-July. Jet fuel JET-USG was trading around $3.45
per gallon, down from an all time high just above $4.20 in
early July.

The following table shows airlines' fuel hedges as they
reported them alongside second-quarter results.

For full story, please double click on.

AIRLINE_____PERIOD_____PCT HEDGED_____PRICE

Continental Airlines_____H2 08_____63_____not disclosed
Continental Airlines_____H1 09_____29_____not disclosed

* United Airlines_____Q3 08_____44_____$100-$127/bbl
* United Airlines_____Q4 08_____47_____$99-$134/bbl
* United Airlines_____FY 09_____14_____$102-$152/bbl

American Airlines_____Q3 08_____35_____$95/bbl
American Airlines_____FY 08_____34_____$82/bbl

Northwest Airlines_____Q3 08_____63_____not disclosed
Northwest Airlines_____Q4 08_____56_____not disclosed
Northwest Airlines_____Q1 09_____21_____not disclosed

Southwest Airlines_____Q3 08_____80_____$61/bbl
Southwest Airlines_____Q4 08_____80_____$58/bbl
Southwest Airlines_____FY 09_____70_____$66/bbl
Southwest Airlines_____FY 10_____40_____$81/bbl

Delta Air Lines_____Q3 08_____48_____$2.94/gln of fuel
Delta Air Lines_____Q4 08_____46_____$3.42/gln of fuel
Delta Air Lines_____FY 09_____21_____$3.48/gln of fuel
Delta Air Lines_____FY 10_____5_____$3.05/gln of fuel

* US Airways_____Q3 08_____58_____$97/bbl
* US Airways_____Q4 08_____47_____$108/bbl

* Data includes fuel consumption for mainline operations
only. All others are for consolidated airline operations.
(Reporting by Kyle Peterson; Editing by Andre Grenon)