Comments on: Oil closes in on $50 a barrel — is it time to hedge?

By: Frank

Frank — Thu, 13 Nov 2008 01:00:35 +0000

So what? They can base their fares on a $51/ barrel oil price and not lose money on the deal
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They just did. They also have HIGHER labor costs now as well. They have some of the HIGHEST paid employees in the industry!

By: jlawrence01

jlawrence01 — Wed, 12 Nov 2008 23:53:23 +0000

>>Arent Southwest’s hedges in the ballpark of $51 dollars? what’s next year’s? If oil goes down any more, Southwest will have hedged ABOVE market rates. A loss. Just who they gonna pass that mistake on to<<

So what? They can base their fares on a $51/ barrel oil price and not lose money on the deal. The other airlines were paying *who knows what* when their fares were based on $60-70/bbl oil.

By: Frank

Frank — Wed, 12 Nov 2008 22:59:02 +0000

Arent Southwest’s hedges in the ballpark of $51 dollars? what’s next year’s? If oil goes down any more, Southwest will have hedged ABOVE market rates. A loss. Just who they gonna pass that mistake on to………………………..LOL.

By: jlawrence01

jlawrence01 — Wed, 12 Nov 2008 20:46:51 +0000

>>Because, simply put, it’s not in the nature of airline managers to think about the future. They would rather wait to see if the price of fuel goes below $40 — and even then, there’s no guarantee they’d buy contracts for fuel purchases.

Most airlines don’t hedge because they do not have the available cash to invest in those instruments. Southwest has consistently been profitable and generating the cashflow necessary to lock in the price of their fuel. Most of the other airlines wereburning through all of their cash.

Do realize that “hedging” guarantees a reasonable price for your commodity purchase, not necessarily the lowest price. My purchase contract to purchase steel in December 2008 at $800/ton looked good in August when the price was approaching $1100/ton but not so good as steel can be had for $700/ton.