ClueByFour
Veteran
- Aug 20, 2002
- 3,566
- 37
According to an article in today's NY times, Southwest's lucrative fuel hedging will be cut by
one third in 2006, and it will add 500-600 million dollars to cost, erasing the 313 million dollar profit in
2004, and expected 400 plus in 2005.
Welcome to the real world?
It says 500 million bucks to the bottom line.
They fly about a million trips a year (or probably will next year). 1 million flights.
They need 500 additional dollars in revenue per flight. They traditionall run a %70 load factor (although even that's going up--but we'll assume with their growth plans it remains around %70). That means (if you discount the 25 or so planes that seat 122), they are filling around 96 seats/flight.
That's roughly a five dollar increase in every fare. Since LUV basically dictates what the bottom fare is in any case, and usually raises fares $1-$3 oneway periodically, I'd say that the solution is a whopping $5 fare increase.
Two increases of $3 if it's closer to $600 million or if they really go nuts. That solves the problem, excluding any additional revenue growth or cost out.
Let's keep things in perspective before predicting Southwest's demise.