Now back to the thread. Folks this is some serious money. I wonder if SWA is going to start rethinking its “no fees strategy?”
AA767AV8TOR
Southwest Airlines says fuel-hedging contracts lost $2 billion in value in October
08:41 AM CDT on Tuesday, October 21, 2008
By TERRY MAXON
[email protected]
Southwest Airlines Co. said Monday the value of its fuel-hedging contracts dropped by nearly $2 billion during the first 15 days of October as their worth followed the sharp decline in jet fuel prices.
In a quarterly financial report to the Securities and Exchange Commission, Southwest said the "fair value" of those investments fell from $2.5 billion on Sept. 30 to $550 million as of Oct. 15.
It's too early to predict how the drop in the contracts' value might affect Southwest's fourth-quarter earnings, but chairman and chief executive Gary Kelly underlined last week that falling energy prices help Southwest a lot more than they hurt the carrier.
"Actually, falling prices are a great opportunity for us and certainly not a problem," he told analysts on a conference call to discuss Southwest's third-quarter earnings.
Southwest has benefited for years from fuel hedging that shielded it somewhat from rising jet fuel prices, while most competitors lacked hedges, had hedges at much higher prices or hadn't invested enough to make much difference on their costs.
Last Thursday, Southwest reported a net loss of $120 million in the third quarter, its first quarterly loss since first quarter 1991 and the biggest quarterly loss in its history.
The airline made money on an operating basis, but it was pushed into the red by $238 million in accounting charges that reflected the decreased value of the fuel derivative contracts and other hedging impacts.
In its SEC filing, Southwest said the value of its "fuel derivative contracts" dropped from $5.1 billion on June 30 to $2.5 billion on Sept. 30.
The numbers included a $448 million hedging gain that the airline received in cash settlements.
Several other carriers have reported accounting losses from hedges recently as energy prices dropped sharply. Crude oil has fallen from a high of over $147 a barrel in July to Monday's close around $75.
UAL Corp., parent of United Airlines Inc., reported a third quarter loss of $779 million today, including $519 million in non-cash losses from the decline in value of its fuel hedges in the quarter.
“At the end of the quarter, the fair value of the outstanding fuel hedge contracts was negative $230 million,” UAL told investors in a press release.
