When is SWA fuel hedging over?

[FCPhotography]

Is it possible when SWA runs out of fuel they will have to pay what everyone else is paying for fuel and maybe ticket prices will get closer to what they were?

Anyone know when they run out of the fuel hedging? 2007-2008?

 

[Falconjet]

Its not over until WE say its over!

Who's with me?

 

[Dizel8]

You can do it!

 

[Falconjet]

Seriously though, I think they are hedged pretty well through 2009. Hedging is an ongoing business practice by a very savy management team. They are able to do so because they have been profitable for 30 years and they have cash in the bank.

Who'da thunk?

FJ

 

[JetDude]

Is it possible when SWA runs out of fuel they will have to pay what everyone else is paying for fuel...?

Regarding fuel, I believe SWA does pay what everyone else does. They don't have prepurchased fuel at a lower rate. Rather, SWA sells their "hedged" positions (in petroleum) to provide income to offset their fuel price. One could hedge in potatoes if they wanted to the same effect.

 

[canyonblue]

Is it possible when SWA runs out of fuel they will have to pay what everyone else is paying for fuel and maybe ticket prices will get closer to what they were?

Anyone know when they run out of the fuel hedging? 2007-2008?

Have you ever used a search engine before? Even on this forum you could get a ton of hits on hedging. SWA will always hedge fuel, and they have since the '90's. It does not run out, it is an ongoing project that our management seems to be pretty good at. Don't mean to berate you, but that question would seem to come more from a retired out of touch airline pilot, or a CFI.

 

[bearcat]

To answer your original question....SWA fuel hedging dramaticall decreases over the next few years. They are facing 600 million more in fuel costs in 06 than 05.

Hedging is a thing of the past. If it wsan't everyone would be doing it. You can get this info straight from SWA website.....downlaod annual report

 

[Dennis Miller]

If it wsan't everyone would be doing it.

If everyone had money, then maybe the rest of us could do it. No bucks, no Buck Rodgers.

 

[Dizel8]

Well, it may be more of a problem finding hedges that make economic sense. I can sell you hedges all day long for 90, but getting them for 40 would be very hard. If oil went to 150, then having bought a hedge at 90 would have been great, but what if oil goes to 50, then it is going to hurt.

SWA have done an amazing job hedging!

PS: Dennis, it is Rogers, unless he is a pornstar

 

[T45Flyer]

If everyone had money, then maybe the rest of us could do it. No bucks, no Buck Rodgers.

BOOYAHHHH !!!!!!

 

[Benhuntn]

Gees I have only been here two yrs and already the hedges are running out. Next thing you the sky will be falling.

 

[FCPhotography]

"Have you ever used a search engine before? Even on this forum you could get a ton of hits on hedging. SWA will always hedge fuel, and they have since the '90's. It does not run out, it is an ongoing project that our management seems to be pretty good at. Don't mean to berate you, but that question would seem to come more from a retired out of touch airline pilot, or a CFI."


Out of touch airline pilot is pretty accurate. I am trying to convince myself I am not an airline pilot. You are helping.

You seem to know your hedging pretty well. But now I am confused because half of these guys aren't saying what you are saying. Also, a search engine does not post my website.

 

[FlyBoeingJets]

Is it possible when SWA runs out of fuel they will have to pay what everyone else is paying for fuel and maybe ticket prices will get closer to what they were?

Anyone know when they run out of the fuel hedging? 2007-2008?

Try the annual report

http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0000950134-06-001553&Type=HTML

In addition to the significant hedging positions the Company had in place during 2005, the Company also has significant future hedging positions. The Company currently has a mixture of purchased call options, collar structures, and fixed price swap agreements in place to hedge over 70 percent of its 2006 total anticipated jet fuel requirements at average crude oil equivalent prices of approximately $36 per barrel, and has also hedged the refinery margins on most of those positions. The Company is also over 60 percent hedged for 2007 at approximately $39 per barrel, over 35 percent hedged for 2008 at approximately $38 per barrel, and approximately 30 percent hedged for 2009 at approximately $39 per barrel.

 

[satpak77]

http://www.fma.org/NewOrleans/Papers/8302208.pdf

AND

http://www.kellogg.northwestern.edu/research/fimrc/papers/jet_fuel.pdf

this article is required reading for all the fuel hedging at SWA questions

it should be noted that to hedge fuel, the hedger (Airline ____) needs to have excellent credit ratings and credit risk, thus you don't see the former US Airways hedging fuel.

a Google search of "fuel hedging" + "southwest airlines" indicates that SWA's profits are clearly tied to (I am not saying dependent on, but tied to) amongst other things, fuel hedging. Hedging is not done as a "extra layer" for "enhanced profits", it is clearly a signifigant role in SWA's profit strategy.

Various news articles indicate that SWA is hedged thru 2007 for the most part...the first major "drop off" in hedging I think is 2008.

FYI, the farthest out ANYONE can hedge right now is December 2012, that is the farthest out contract on the NYMEX...priced at $63 a barrell.

"63 bucks, no big savings....its now 70 bucks a barrell"

Yes but this is the 2012 contract, in 2012 (6 years from now) crude oil could be 150 bucks a barrell.

http://www2.barchart.com/dfutpage.asp?sym=CL&code=BSTK

later

 

[FlyBoeingJets]

During 2005, 2004, and 2003, the Company recognized gains in “Fuel and oil” expense of $890 million, $455 million, and $171 million, respectively, from hedging activities. At December 31, 2005 and 2004, approximately $83 million and $51 million, respectively, due from third parties from expired derivative contracts, is included in “Accounts and other receivables” in the accompanying Consolidated Balance Sheet. The fair value of the Company’s financial derivative instruments at December 31, 2005, was a net asset of approximately $1.7 billion. The current portion of these financial derivative instruments, $640 million, is classified as “Fuel hedge contracts” and the long-term portion, $1.1 billion, is classified as “Other assets” in the Consolidated Balance Sheet. The fair value of the derivative instruments, depending on the type of instrument, was determined by the use of present value methods or standard option value models with assumptions about commodity prices based on those observed in underlying markets.

As of December 31, 2005, the Company had approximately $890 million in unrealized gains, net of tax, in “Accumulated other comprehensive income (loss)” related to fuel hedges. Included in this total are approximately $327 million in net unrealized gains that are expected to be realized in earnings during 2006.​

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