|Quoting AirRyan (Reply 18):|
I guess what I still don't get is how come Southwest is the only one making out like bandits right now - there has got to be more than just dumb-luck and the perks that go with paying in cash.
AirRyan, you've asked the key question; there are those (reference posts above) who seem convinced that the sole reason WN
is profitable is that they have well-planned fuel hedging, and this contention is silly.
First of all, bear in mind that the hedges are but one example of excellent planning by WN
, and execution of the plan.
Southwest management is always
looking out for better ways to do what they do. This extends to every facet of the operation, from:
>> aircraft selection (one fleet of well-designed, efficient and proven aircraft), to
>>labor relations (deal with labor in a straightforward and honest manner, share the rewards of success), to
>>cost control (the best way to make a buck is to not spend it in the first place, if spending that dollar will not yield a better product), to
>> maintenance (absolute commitment to best practices in aircraft maintenance means greater safety and reliability, which means that aircraft have greater dispatch reliability, which means that the "extra" money spent on highest-quality maintenance is made back many times over in greater aircraft utilization), to
>> route selection (only open up markets in which they have a reasonable expectation of profitably operating a sufficient number of flightsdaily to justify the up-front expense of opening up the station).
It does not end there, of course. There is so much more than fuel hedging to explain WN
's success, but it *is* a good and illustrative example; bear in mind that hedging is nothing more than buying option contracts for future fuel deliveries, and they could have bet wrong, in which case they'd be paying some extra for the fuel that they puchased- but note, it would still be delivered at a price that they could bear paying and still be profitable- hence, they eliminated one substantial element of the uncertainty of future costs, thus clearing the way for more effective planning in other areas of operations.
Note well, also, that fuel hedging costs a great deal
of money, money which Southwest had because they have been consistently profitable and, unlike many other carriers, they never forgot, during the good times, to plan for the bad times.
As for the "they'd be losing money except for the fuel hedges" argument, it is specious and one-dimensional. You could as easily state that they'd lose money if they paid more for their airplanes, had less-productive employees or opened up stations that were big losers. The fuel hedging is but one element of heir overall management plan (and excellent execution by all the line employees, to whom WN
management consistently and wisely give credit).
So remember this: when Southwest no longer has good hedged fuel delivery positions (maybe that should be "if," because they are still actively managing fuel cost exposure along with every other cost), they will have planned for that situation, and will adapt in many other areas, as they have always done in the past. As it is, their fuel hedging is but one element among many that has allowed them to maintain profitability while concurrently offering the best-quality, most reliable and most reasonably-priced air travel product in the US domestic market.
...three miles from BRONS, clear for the ILS one five approach...