Upgrade time at SWA?

[dashocho]

Jblu

Good to see you in OAK last month. Glad things worked out. Thanks for being just 10 numbers senior to me as well. Otherwise you leaving would have done nothing to help me!!!! LOL

PS: We all got off probation today!!!!!!!!!

 

[Jim Smyth]

PS: We all got off probation today!!!!!!!!!

As they said in Animal House..................

"Now you go on double secret probation!"

 

[ivauir]

Um, no, I guess you don't understand hedges. You can't "rework" them. Most of the hedges the airlines do are simply futures contracts. A futures contract is today's spot price, which is around $59/bbl, plus the cost of interest on the money for the lengh of the futures contract.

So, there isn't some special place that only LUV knows about to go buy oil for less than $59/bbl. They might be hedging some at $59+, but probably not too much.

Actually, your understanding of the hedges is incomplete, they do NOT reflect todays price, but instead what someone thinks the price will be in the future. As a result we are constantly "reworking" our fuel hedges; our finance department watches the market and takes advantage of fluctuations as they occur. The "special place" that only LUV knows is the place that takes only cash. The hedges are not "runnig out", they just aren't at $26 a barrel anymore.

As a matter of fact, we have just added some hedges through 08, and we didn't pay 59 (I can't remember the price). Basically there are still enough traders willing to bet that the price will fall that we can still hedge below the current market price. At some point the price WILL fall and we'll have paid a premium, but the corresponding economic boom that will result should drive up yeilds and offset that premium price on fuel. Furthermore, we are able to base our business model on a flatter and more predicatable fuel cost. This way we can set ticket prices, buy airplanes, and hire pilots based on real world expense numbers (we already bought most of our gas for 06). This beats the heck out of guessing and then finding out you've been selling tickets too cheap and are losing money, because fuel went up 5 minutes ago.

 

[dashocho]

As they said in Animal House..................

"Now you go on double secret probation!"

Capt. Wormer? Is that you?

 

[radarlove]

Actually, your understanding of the hedges is incomplete, they do NOT reflect todays price

Please don't argue finance if you don't even understand a futures contract.

Here's some homework: go find a futures contract that trades for less than today's price. Yeah, your company couldn't find one either.

but instead what someone thinks the price will be in the future.

No, the futures price is based on today's spot price plus the cost to borrow money for the length of the contract. If it were off, there would be an arbitrage opportunity.

As a result we are constantly "reworking" our fuel hedges; our finance department watches the market and takes advantage of fluctuations as they occur. The "special place" that only LUV knows is the place that takes only cash.

This doesn't make any sense. What do you mean, "only takes cash"? Was that an attempt at a joke?

The hedges are not "runnig out", they just aren't at $26 a barrel anymore.

Sure they are, if I remember the financial press, your company stopped hedging as the price rose significantly. The hedges, in fact, "run out". Because next, you say:

As a matter of fact, we have just added some hedges through 08, and we didn't pay 59 (I can't remember the price)

Why don't you read your own company's financial information? They have a whole paragraph describing the length of the hedges. Hint: they run out.

The reason you don't know the price is because they didn't tell you the price, unless you work in the finance department, which you apparently don't, since you don't understand futures pricing.

. Basically there are still enough traders willing to bet that the price will fall that we can still hedge below the current market price.

Ok, easy enough there big guy. Find me one quoted futures price that is below today's price. If those "traders" exist, then surely you can find the price?

 

[7S3W7A]

ivauir just got bitch slapped.

 

[TAZ MAN]

ivauir just got bitch slapped.

I'm just curious 7S3W7A,

Why couldn't you answer SWAdudes question?

A little false representation?

Your here right now...so answer.

 

[TAZ MAN]

Gone again with no answer.

I guess SWAdude outed ya!!!

Good job SWAdude!!!

 

[ivauir]

I never claimed to be a financial guru, but you are just wrong here. We are constantly adding hedges. We have hedges going past 2008 and some of that is at 33$ a barrel. I am not going to do any "homework" for you - we have a fuel department that takes care of that for me. But I read in some mail box stuffer that we just added some hedges - I don't remember the price because I didn't try to. If you want to post some useful links feel free. But the hedges are not "running out" they just aren't as sweet a deal as they used to be.

So, you are just as wrong as you were with your first post.

 

[ivauir]

ivauir just got bitch slapped.

Again, not a single useful thing to say. Try a new screen name.

 

[ivauir]

Um, no, I guess you don't understand hedges. You can't "rework" them. Most of the hedges the airlines do are simply futures contracts. A futures contract is today's spot price, which is around $59/bbl, plus the cost of interest on the money for the lengh of the futures contract.

So, there isn't some special place that only LUV knows about to go buy oil for less than $59/bbl. They might be hedging some at $59+, but probably not too much.

"That’s what a hedge does for us. Just like you would not want to be without health and life insurance, Southwest would not want to be unprotected against soaring fuel costs. Hedging allows us to better plan for our future and take more control of our destiny."
– Gary Kelly
There are two basic types of hedges. The first is like buying an insurance policy to protect against rising prices. We simply pay money (the "premium") to lock in a maximum price that we will pay for jet fuel (or a related commodity) on a specifc date in the future. If the market price is above our hedged price on that date, we come out ahead—sometimes way ahead. But if the market price is under our guaranteed price, our cost is limited to the premium we paid. A second way to hedge is to guarantee a fixed price at a future date. With this type of hedging, there is no initial cost, and our gains or losses are based upon the difference between the fixed and market prices.

I repeat - the hedges are not running out. Before you start "slapping" me radar love I got that information from someone better informed and smarter than you. Consider yourself educated.

 

[Jack Mahogoff]

2 of my 3 hedges burned up this past summer. I tried watering constantly. The landscaper is saying it's going to cost a couple hundred bucks total. How much is Southwest getting these things for?

If anyone has good tips on hedges, please let me know.

Thanks in advance.

 

[dashocho]

Jack, be careful where you plant your hedges. If you plant them in Philly, the US Airways guys may not like it. Don't plant them by DFW, American guys will not be happy. Denver seems like a good place to plant? Well, I think you're getting the point. If I were you, plant barley! Then everyone will be happy come harvest time. If your crop burns again, call it a stout or a porter when you're done. Till then, may all your beers be cold and every woman that crosses your path look as good as when we leave the bar at 2 am!!!!!

 

[firstthird]

Ivauir is right on this one. We keep adding new hedges for the future and they are NOT at 59 a barrel or close. Last I read we were 30% hedged in 2009 at around 35 a barrel or maybe 39 (but no where near todays or last weeks or anything in the last 6 months spot prices).

 

[radarlove]

Please don't argue finance if you don't even understand a futures contract.

Here's some homework: go find a futures contract that trades for less than today's price. Yeah, your company couldn't find one either.


No, the futures price is based on today's spot price plus the cost to borrow money for the length of the contract. If it were off, there would be an arbitrage opportunity.


This doesn't make any sense. What do you mean, "only takes cash"? Was that an attempt at a joke?


Sure they are, if I remember the financial press, your company stopped hedging as the price rose significantly. The hedges, in fact, "run out". Because next, you say:





Why don't you read your own company's financial information? They have a whole paragraph describing the length of the hedges. Hint: they run out.

The reason you don't know the price is because they didn't tell you the price, unless you work in the finance department, which you apparently don't, since you don't understand futures pricing.


Ok, easy enough there big guy. Find me one quoted futures price that is below today's price. If those "traders" exist, then surely you can find the price?

Hey big guy, still waiting for you to come up with some examples of futures prices that are lower than today's prices.

 

[radarlove]

Ivauir is right on this one. We keep adding new hedges for the future and they are NOT at 59 a barrel or close. Last I read we were 30% hedged in 2009 at around 35 a barrel or maybe 39 (but no where near todays or last weeks or anything in the last 6 months spot prices).

You too. Can you find a quote for an oil future that is lower than today's price? Please, I hope you do, I can make some quick arbitrage bucks.

 

[iflyfred]

This took about 1 minute and 22 seconds to find in the most recent quaterly report filed with the SEC:

The Company currently has a mixture of purchased call options, collar structures, and fixed price swap agreements in place to hedge approximately 85 percent of its remaining 2005 total anticipated jet fuel requirements. These positions are capped at crude oil prices of $26 per barrel and the Company has also hedged the refinery margins on the majority of those positions. As of September 30, 2005, the “spot” market price for a barrel of crude oil was over $66. The Company is over 70 percent hedged for 2006 at
approximately $36 per barrel and has also hedged the refinery margins on most of those positions. The Company is also over 55 percent hedged for 2007 at approximately $37 per barrel, approximately 35 percent hedged for 2008 at approximately $37 per barrel, and approximately 30 percent hedged for 2009 at approximately $39 per barrel.​

 

[radarlove]

This took about 1 minute and 22 seconds to find in the most recent quaterly report filed with the SEC:

The Company currently has a mixture of purchased call options, collar structures, and fixed price swap agreements in place to hedge approximately 85 percent of its remaining 2005 total anticipated jet fuel requirements. These positions are capped at crude oil prices of $26 per barrel and the Company has also hedged the refinery margins on the majority of those positions. As of September 30, 2005, the “spot” market price for a barrel of crude oil was over $66. The Company is over 70 percent hedged for 2006 at
approximately $36 per barrel and has also hedged the refinery margins on most of those positions. The Company is also over 55 percent hedged for 2007 at approximately $37 per barrel, approximately 35 percent hedged for 2008 at approximately $37 per barrel, and approximately 30 percent hedged for 2009 at approximately $39 per barrel.
​

Right. They bought those hedges when the price was lower than it is today. They are not buying $26/bbl hedges with the spot price near $60.

 

[Jack Mahogoff]

Jack, be careful where you plant your hedges. If you plant them in Philly, the US Airways guys may not like it. Don't plant them by DFW, American guys will not be happy. Denver seems like a good place to plant? Well, I think you're getting the point. If I were you, plant barley! Then everyone will be happy come harvest time. If your crop burns again, call it a stout or a porter when you're done. Till then, may all your beers be cold and every woman that crosses your path look as good as when we leave the bar at 2 am!!!!!

Ah yes, malt, hops, and barley! I could use an ice cold Yeungling right about now! It's noon somewhere isn't it? :beer:

 

[ivauir]

Hey big guy, still waiting for you to come up with some examples of futures prices that are lower than today's prices.

Hey big guy I don't work for you so you can pound sand. I don't care to become a futures trader, so maybe you are correct on that tidbit. But I am not going to let you post stuff about my company that just isn't true. And we ARE adding hedges and will continue to do so. Somehow those hedges are not the same price that we are paying at the pump. Maybe you with your VASTLY supperior knowledge can explain how that works. All I care is that it does work.

BTW, why are you quoting yourself? Do you think your sarcasm didn't get through the first time?