Cost Item

[tadjr]

tadjr,
we have no way of knowing if 30% is the max they can hedge or not, given our finanical position...why do you assume they aren't already doing the best they can.

Do you really need to ask that given everything else thats happened?
I know CCY people read here, so let them set the record straight. If we're hedged all we can be say it, if not, admit we're not and could be hedged more. I'd be the first to apologize if thats the case. I believe that might not be the case, but would love to be proved wrong. I believe that WN is the airline we are trying to "be like" and found this information on their hedging for the rest of this year and next. Compare this to our 30% and ....

Like most airlines, Southwest tries to minimize the effects of rising fuel prices by hedging, or locking in the price it pays for fuel in advance. About 87 percent of its fuel purchases are hedged for the rest of the year, said Ed Stewart, Southwest spokesman.

About 83 percent of the carrier's fuel purchases are hedged for 2004, he said.

So if WN is doing it, why arent we?

 

[flyin2low]

"What I would like to know is when the price of fuel drops below the hedged price.'

The airline loses the bet and has to pay through the nose.

 

[ClueByFour]

tadjr,
we have no way of knowing if 30% is the max they can hedge or not, given our finanical position...why do you assume they aren't already doing the best they can.

Largely because when an idiot demonstrates on a consistant basis that he's an idiot, you assume it to be status quo, absent evidence to the contrary.

 

[Rob]

"What I would like to know is when the price of fuel drops below the hedged price.'

The airline loses the bet and has to pay through the nose.

No, the airline would pay the market price for fuel but would lose the cost of the hedge, which could be substantial. The "hedge" is typically an forward call option on heating oil, which has price characteristics similar to jet fuel.

 

[mrplanes]

jackmama & justramper:

You seem to be missing the point. LUV paid 12 cents a gallon less than we did this year to date. Historically, regardless of our C11 foray, LUV has consistently paid less for fuel than we have. Each year, every year. Why would you attempt to defend incompetence?

Every major carrier hedges fuel to one extent or another because they employ people who understand the concept and the future of oil prices. I use LUV as an example because they are eating our lunch. And this management constantly harps to us about the costs. Management controls costs. Not unions. Not employees. Management. Seigel. Fuel costs are his baby. Not ours.

He has done zip to make us more productive since emerging. Parking jets and furloughing does nothing for productivity. It was not in his "plan". Now that he sees the flaws in his plan who do you think he is blaming his folly on? Himself? No, now it's the costs. Read: The employees antiquated and outdated work rules. But wait. We pay more for fuel than LUV. Why don't we hear about that? Because that shows inept management. Get it Jackmama?

We all want to be more productive. We all want to kick LUV back to Texas. We wanted to do that when they took over the west coast and BWI. But our management wouldn't permit it. We have had bad management so long even some of us excuse their ineptness. Read the previous posts in this thread closely if you don't believe me. It's time to stop that nonsense and get rid of this cancer. Or we will be another EAL, TWA, PAA, etc...

mr

 

[a320av8r]

With Saddam's capture, we'll see what happens to fuel prices. Iraq may be fully online soon.

 

[mrplanes]

Piney:

We managed to find bankruptcy just fine without hedging fuel. And your premise is totally wrong regarding betting the wrong way. You wouldn't "bankrupt" the company. You would pay the going rate for fuel at the time of the hedge transaction. Southwest is certainly riding a winning steak aren't they? Yes, they do look like heroes. That is because they have a management that can run an airline. Fuel hedging is just a part of that equation. That is the point of the post. But you, and others, miss that. When a 737 is delivered to LUV and U it is the same. What happens after that determines profit and loss. That is the point. Seigel hasn't saved this airline. The laws of Chapter 11 of the bankruptcy code did that. Seigel is destroying this airline. His managment team is doing that.

mr

 

[mrplanes]

Pine:

I'm am not hammering you. I am pointing out that other companies hedge fuel to save money. And you are correct, fuel oil hedging is not the same as a major airline doing the same thing. As for everything being Dave's fault:

He is where the buck stops. He is being paid large sums to do the job. Much more than his counterparts at LUV and JetBlue are paid. And is he doing his job? He asked for the tools in the bankruptcy process from the employees and the people who supply goods and services to us. He got those tools. More tools than ANY OTHER LEGACY CARRIER! And what have we got to show for it? Losses. And more losses.

So Piney, it is Dave's fault. Every other legacy carrier made money in the 3rd quarter except for UAL (in C11) and DAL (no pilot concessions). The employees have and are continuing to hold up our end of the bargain. Dave Seigel is not. He is responsible for our lack of profitability. He is the guy who is running this company. He is the guy who decides to hedge or not hedge. To park jets or fly them. To layoff or hire. To pull out of a city or start service. So on and so forth. I do not know everything either Pine, unlike Chip. But I do know who is responsible for the profit or losses at US Airways. His name is Dave Seigel.

mr

 

[diogenes]

Well, there are hedges, and then there are hedges.

We have all read about the hedge funds that leave investors holding the bag. Those are for another topic.

The hedge we are talking about serves the same purpose that a bank, or investment fund, or any other entity hedges its risks.

It is to contain risk for a known period of time; in the case of a fuel hedge, normally for a fiscal year. A fuel hedge means while you will not pay the absolute lowest price for the year, you also will not pay the highest. This creates fiscal stability, as exposure to the risks of fluctuating fuel prices is minimized, if not eliminated.

For an example in another arena, suppose you run an investment fund. All indications say the stock market is going higher over the next six months. You COULD dump all $$ into stocks. But, being conservative and prudent, you realized the market could go south. So, you put a portion of your $$$ into stocks, and put another portion into shorting those stocks (math whizzes can figure out what ratios). In effect, you're covering your bets.

With this strategy, if the market does go up, you would not realize the full potential as if all $$ went into stocks. But, if the market declines, you don't lose it all, either. Best of all, with a well thought-out hedge, you KNOW the range of your returns.

The mafia does this all the time. They take bets on both sides of the game, and generally try to accept even amounts on both sides of the bet, given the odds. The real money is in the fees for them.