jacobin777
Posts: 12262
Joined: Sat Sep 11, 2004 6:29 pm

Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 3:43 am

I found an article today about WN's fuel hedging strategy.....they've done a good job, where as the legacies (because of bankruptcies, bad judegement, etc) have not..

i would be curious about the other LCC's..

"Solid Southwest can afford to stay the hedging course. It already has hedged more than 80% of its fuel needs for next year with prices capped at the equivalent of $25 per barrel of crude, 60% in 2006 at $31 a barrel, and over 40% in 2007 at $30 a barrel. That's far below where the market is betting that oil prices will be. "


http://yahoo.businessweek.com/bwdaily/dnflash/oct2004/nf20041022_9159_db035.htm
"Up the Irons!"
 
7e72004
Posts: 3440
Joined: Thu Apr 01, 2004 12:15 am

RE: Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 3:52 am

Imagine if Southwest did not hedge...i think they would be in the same boat as the others quite possibly.
The next generation of aircraft is just around the corner!
 
roseflyer
Posts: 9606
Joined: Fri Feb 13, 2004 9:34 am

RE: Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 4:02 am

Some airlines have done a much better job blunting the impact of higher jet fuel prices by hedging those costs with futures contracts that allow them to buy fuel at below market rates.
Percent of fuel costs hedged in 2004.

--- Q2 -- Q3-- Q4
FL 25% 10% 10%
AS 40% 30% 31%
AA 16% _6% _6%
HP 35% 20% 10%
CO 80% 45% 45%
DL --0% --0% --0%
B6 44% 40% 40%
WN 80% 80% 80%
NW --0% - -0% --0%

Compared with Lufthansa (90 percent of this year's fuel bill), Air France (72 percent), British Airways (45 percent) and Virgin Atlantic (40 to 50 percent).

Soure: Lehman Brothers and MSNBC

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burnsie28
Posts: 5040
Joined: Mon Aug 02, 2004 1:49 am

RE: Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 6:36 am

Wow NW at 0% and yet they are really in second place to losing less money shortly behind CO. I dont think all the reasons why airlines are in trouble was because of fuel, granted it is a large part, but NW shows that you dont need fuel hedging to do a good job.
 
greasespot
Posts: 2955
Joined: Sat Apr 24, 2004 10:48 am

RE: Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 7:50 am

Losing Money is the busiest time of the year is "doing a good Job"???

Wow set the bar low or what.

GS
Sometimes all you can do is look them in the eye and ask " how much did your mom drink when she was pregnant with you?"
 
jonnyboymia
Posts: 6
Joined: Wed Sep 29, 2004 8:33 am

RE: Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 8:16 am

Hi forum,

Good topic, Hedging as we all know is like betting -and yes betting in your favour -South W have so far done a good job with this -yes it runs in there favour due to spiralling fuel costs -long term hedging again can go against you if the price of barrrels indeed falls -so yes at this point in time it does indeed look like a pretty picture. Again in their favour they are a domestic US carrier -so with good fuel experts can indeed "worst case scenario" future forecasts knowing what could or might put the price of keresene up -Now for an Intl carrier flying all over the world you will see less of a hedging habit, due to the fact foreign markets are slightly more volitile be it politcial or other influences etc etc....
 
jacobin777
Posts: 12262
Joined: Sat Sep 11, 2004 6:29 pm

RE: Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 8:30 am

Jonnyboymia........welcome to airliners.net board......  Smile

Yes, hedging can be a bad thing......but good technical and good fundemental analysis can be used to guage future oil prices pretty accuartely, and thats why its good to hedge not a 100%, but maybe 50-75% of oil.........

as I mentioned in a previous disucssion and as 7E72004 mentioned above, if WN wasn't hedged, they would have been losing money also........

I wish I got to buy a few thousand barrels of oil at $25 right now, heck I'd be happy to sell it for $45-$50 and undercut everyone else........just call me J.R. Ewing....... Smokin cool
"Up the Irons!"
 
dutchjet
Posts: 7714
Joined: Sat Oct 14, 2000 6:13 am

RE: Southwest's And Legacies Fuel Hedging

Sat Oct 23, 2004 8:38 am

Its very difficult to hedge fuel costs for an airline that is in poor financial condition - good credit is required and good financial resources are required, that reason alone could explain why some the US carriers have not hedged their fuel costs.