Too Bad We Cannot Hedge

[UseYourHead]

Too bad we cannot hedge, many airlines would be in the black if they had the funds to hedge, or implemented a successful program.

See Story: http://www.atwonline.com/archives/news/arc...ews_jan1705.cfm

Hedging saves Southwest profits in fourth quarter
Dateline: Thursday January 20, 2005

High fuel prices and a competitive revenue environment impacted all US airlines in 2004, and even low-cost giant Southwest Airlines was not immune as its fourth-quarter net income fell 15.2% to $56 million, including an $8 million charge related to fuel hedging, from $66 million in the prior-year period.

CEO Gary Kelly noted that without the gains from its hedging program, which reduced fuel and oil expense in the quarter by $174 million, the carrier would have lost money for the period.

 

[goingboeing]

Too bad we cannot hedge, many airlines would be in the black if they had the funds to hedge, or implemented a successful program.

See Story: http://www.atwonline.com/archives/news/arc...ews_jan1705.cfm

Hedging saves Southwest profits in fourth quarter
Dateline: Thursday January 20, 2005

High fuel prices and a competitive revenue environment impacted all US airlines in 2004, and even low-cost giant Southwest Airlines was not immune as its fourth-quarter net income fell 15.2% to $56 million, including an $8 million charge related to fuel hedging, from $66 million in the prior-year period.

CEO Gary Kelly noted that without the gains from its hedging program, which reduced fuel and oil expense in the quarter by $174 million, the carrier would have lost money for the period.

[post="241862"][/post]​

Coulda,woulda,shoulda!
The people that have the best credit score get the lowest interest rate when they borrow money.The same goes for fuel hedging.
Would you give a discount to a customer who is operating in C11 and may never pay you for the fuel?

 

[BoeingBoy]

For those waiting for WN's hedges to run out, don't hold your breath....

"By contrast, Southwest's unit costs were down even counting fuel, due to the carrier's industry-leading fuel-hedging program (see graph, p. 35). The saving for the quarter was $174 million, more than triple net income, and there's more to come. Southwest is 85% hedged at prices capped at $26 per barrel of oil for 2005, 65% at $32 per barrel for 2006, more than 45% at $31 per barrel for 2007 and more than 25% at $35 per barrel for 2008."

Jim

[edit by me - please add that this is from Aviation Week & Space Technology]

 

[RowUnderDCA]

Those were the exact words that came to mind when I read that.

 

[jimntx]

It's too late for any of us to hedge. SW set up these hedges when oil was selling for $30-35/bbl. At the time, the oil companies would have rather had a guarantee of $30+/bbl prices for product than risking one of the usual plunges into the less than $20 range which happened with oil gluts.

When oil is selling for $48/bbl on the spot market (per MSNBC as of 1400 ET), no one is interested in selling a hedge for $30 or even $40/bbl.

The only good reason to hedge now would be if $60/bbl oil was expected. And, SW would still have the edge with their long-term hedges.

 

[BoeingBoy]

"When oil is selling for $48/bbl on the spot market"

According to Bloomberg, heating oil is trading at $1.4032 today - that's equivalent to $58.93 per barrel - and a most will know, jet fuel, heating oil, and diesel pretty much compete with each other in the refining process. I've read that heating oil has a 95% price correlation factor with jet fuel.

Jim

 

[FWAAA]

It's too late for any of us to hedge. SW set up these hedges when oil was selling for $30-35/bbl. At the time, the oil companies would have rather had a guarantee of $30+/bbl prices for product than risking one of the usual plunges into the less than $20 range which happened with oil gluts.

When oil is selling for $48/bbl on the spot market (per MSNBC as of 1400 ET), no one is interested in selling a hedge for $30 or even $40/bbl.

The only good reason to hedge now would be if $60/bbl oil was expected. And, SW would still have the edge with their long-term hedges.

[post="242002"][/post]​

Actually, WN has continued to advance its hedges throughout Q4, 2004, when oil spiked as high as $55.

Neither side of the hedges believes that oil will still be $48-$50/bbl in 2008 or 2009, and that's why WN keeps on entering into hedging transactions farther and farther out into the future. WN's hedges for those years are at higher prices than for 2004 or 2005, but they are for much less than today's spot price.

 

[700UW]

For the first time since the airline sought bankruptcy protection last September, Mitchell granted it permission to hedge on fuel markets, which allows it lock in the price of a percentage of its fuel for future use.

Fuel costs have doubled in the past three years and record prices in 2004 plunged the biggest carriers, including US Airways, deeper into red ink. US Airways paid $300 million more for fuel in the first nine months of 2004 than it projected. Fourth quarter figures are due soon.

The industry estimates fuel prices at roughly $43 per barrel this year, which is more than $10 below last year's high. US Airways did not say how much it plans to hedge.

 

[JS]

Emphasis added...

For the first time since the airline sought bankruptcy protection last September, Mitchell granted it permission to hedge on fuel markets, which allows it lock in the price of a percentage of its fuel for future use.

Fuel costs have doubled in the past three years and record prices in 2004 plunged the biggest carriers, including US Airways, deeper into red ink. US Airways paid $300 million more for fuel in the first nine months of 2004 than it projected. Fourth quarter figures are due soon.

The industry estimates fuel prices at roughly $43 per barrel this year, which is more than $10 below last year's high. US Airways did not say how much it plans to hedge.

[post="242895"][/post]​

You would need a time machine in order for this post to make any sense.

 

[RowUnderDCA]

Is it possible or feasible for U to hedge fuel prior to the Iraqi elections this weekend? I guess it simply involves purchasing a financial instrument.... derivative?

 

[Segue]

Its like saying "I should have bought Mircrosoft at $5 a share and I would be a millionaire"

 

[PITbull]

Why would U hedge now? If oil goes up any more than now, it will be curtains. U can not sustain the current prices...so why would they hedge at current prices?


U needs to conserve their cash if and when fuel takes a momentary dive...if ever. Then hedge.

And you can hedge in BK, you just need cash and approval.

 

[PITbull]

Emphasis added...
You would need a time machine in order for this post to make any sense.

[post="242907"][/post]​

700UW is correct.

U can hedge if they have the cash, and if the price is correct. Makes no sense to hedge at $58 barrel. Only if you think oil is going up over $60.

Like I said $58, or $50 a barrel is not sustainable for U.


Conserve cash.

 

[Winglet]

$50 oil is not affordable for ANY airline in this economy . . . including SW. What it is going to do is drive down compensation more and eventually run the deathbed carriers, UAL and U to their graves. DAL, AA, then NWA. This is a "last man standing" game.

 

[goingboeing]

$50 oil is not affordable for ANY airline in this economy . . . including SW.

[post="242973"][/post]​

Simple solution: increase fares or add a fuel surcharge to cover the more expensive costs.SWA and Jet Blue have to purchase fuel also so they would also have to increase fares.