Swa Reports 1q05 Profit Of $76m

[funguy2]

This idea that the hedge is some sort of windfall and WN would have been screwed without it is utter tosh. The hedges give predictability to WN's fuel costs -- based on that, they get a very accurate view of where total costs will be, and therefore, what will be profitable flying or not. The predictability is as important as the hedge price itself. So -- next quarter the hedge price is higher? Routes will just have to generate more revenue in order to be profitable or they will be cut, or they will increase prices modestly. WN management will be planning very thoroughly for the (predictably) higher fuel costs.

Congrats to all at WN, from the boardroom to the ramp.

[post="262340"][/post]​

I think the note about the fuel hedge shows this:

1. LUV is not immune to the pricing difficulties in the industry - if LUV's fares increased to cover the cost of fuel, its passenger load would decline (i.e. supply/demand). Now, because of Southwest's position in the industry, chances are that LUV would be able to raise fares and adjust if it had to, if it magically lost its fuel hedge.

2. LUV is managed very well, and I suspect if LUV was not hedged, the company would have found a different way to remain profitable.

 

[jimntx]

2. LUV is managed very well, and I suspect if LUV was not hedged, the company would have found a different way to remain profitable.

[post="262896"][/post]​

And, even if they had not remained "profitable", I'd be willing to bet you that the losses would not have been in the hundreds of millions/quarter category!

 

[JS]

These arguments are silly. Hedging is a function of management. Some of you people make it sound like Southwest won the cheap fuel lottery.

 

[North by Northwest]

SW has several things going for it. It's work force and employee responsibilities (financial) are junior compared to 77 year old carriers. It does not serve any where near the remote communities that the large carriers serve. It's formula for fuel hedging is way ahead of any airline flying. Based on these fundamentals...you can not compare SW with airlines flying around the world everyday. It's like comparing local light rail to long distance bullet trains. You can take ANY major carrier out there and reduce it to the same domestic operation as SW (along with SW work rules) add proper fuel hedging ...VIOLA! Profit! (i.e. jetblue, airtran.) Just mho.

 

[mrman]

SW has several things going for it. It's work force and employee responsibilities (financial) are junior compared to 77 year old carriers. It does not serve any where near the remote communities that the large carriers serve. It's formula for fuel hedging is way ahead of any airline flying. Based on these fundamentals...you can not compare SW with airlines flying around the world everyday. It's like comparing local light rail to long distance bullet trains. You can take ANY major carrier out there and reduce it to the same domestic operation as SW (along with SW work rules) add proper fuel hedging ...VIOLA! Profit! (i.e. jetblue, airtran.) Just mho.

[post="263680"][/post]​

First Overseas is profitable, now its not? If you are not profitable serving remote communities, overseas, etc. then don't do it. Why would anyone go into or continue an unprofitable business? No one has a gun to NW head. Mesa or another airline would be happy to go it alone for the small, and others for the large, if it was profitable.

Or are you saying the Legacies are serving these markets because they are charity cases?

 

[KCFlyer]

SW has several things going for it. It's work force and employee responsibilities (financial) are junior compared to 77 year old carriers.

[post="263680"][/post]​

Is there a 77 year top out for labor costs?

It does not serve any where near the remote communities that the large carriers serve.

[post="263680"][/post]​

Actually, the majors serve fewer "remote communities" than Southwest - at least Southwest is flying full grown 737's into Lubbock, Midland and Harlingen. The others are using "express" RJ's and turboprops - Comair, Eagle, Airlink. And the Eagles and Comairs were doing that way back before the majors decided they needed to "wholly own" those companies. But there aren't really a heckuva a lot of "remote communities" that see mainline metal touching down.

 

[North by Northwest]

"Actually, the majors serve fewer "remote communities" than Southwest (actually they DON'T, and we're not talking RJ's either.)Is there a 77 year top out for labor costs? Lets start with pensions... then we can go to work rules.... I was just in Montana...didn't see to many SW planes, nor Alaska. Yes, international IS profitable...very.

 

[KCFlyer]

"Actually, the majors serve fewer "remote communities" than Southwest (actually they DON'T, and we're not talking RJ's either.)Is there a 77 year top out for labor costs? Lets start with pensions... then we can go to work rules.... I was just in Montana...didn't see to many SW planes, nor Alaska. Yes, international IS profitable...very.

[post="263765"][/post]​

For every Billings, there is an Amarillo. For every Fargo, there is an Odessa. I don't see much NWA traffic in those towns.

 

[North by Northwest]

Look...I will be the LAST person to rain on SW's parade. I say BRAVO to ya! SW's #1 secret weapon is they know how to treat their employees...most of the time. I wish you people many more decades of success. Work it...till you can't work no more!

 

[AAmech]

These arguments are silly. Hedging is a function of management. Some of you people make it sound like Southwest won the cheap fuel lottery.

[post="263667"][/post]​

Thats the point! They did win the fuel lottery!! BIG TIME!!! Hedges have traditionally given preditability and stability to an airlines fuel purchases. In the case of WN, it gave them a tremendous WINDFALL! If they paid "Pump" price and everything else stayed the same as stated on their 1st qt financial statement, WN would have suffered a whopper of a loss!
Now the key phrase is "if everything else stayed the same". We all know that if the hedges did not exist WN would have taken action probably in the form of higher ticket prices which would have benifited everyone else in the industry.

DISCLAIMER: I am not now nor Have I ever been a WN hater so please don't
start jumping my S--t because I posted here!!!

 

[FWAAA]

Thats the point! They did win the fuel lottery!! BIG TIME!!! Hedges have traditionally given preditability and stability to an airlines fuel purchases. In the case of WN, it gave them a tremendous WINDFALL! If they paid "Pump" price and everything else stayed the same as stated on their 1st qt financial statement, WN would have suffered a whopper of a loss!
Now the key phrase is "if everything else stayed the same". We all know that if the hedges did not exist WN would have taken action probably in the form of higher ticket prices which would have benifited everyone else in the industry.

[post="263953"][/post]​

I agree with everything except the bolded portion. WN did try to raise ticket prices during the first quarter, yet it still saw its yield decline, just like everyone else. You can be certain that WN was not satisfied with the size of its profit in Q1. What makes so many people think that the market forces that determine ticket price don't apply to WN? Those market forces apply to all other airlines, so what excuses WN from the Supply-Demand regime?

 

[funguy2]

FWAAA: As I said above, I agree with AAmech's comments. LUV would have found a different way to be profitable. Although, I agree with you, that it would not have been through increasing fares. Maybe they would retire more aircraft with their deliveries and thus slow down or stop their growth... Thus altering the supply side. Maybe they would have been even more agressive with their recent campaign of removing short-hauls and replacing them with mid to long hauls.

I really hate to guess what LUV would have/could have done. But what I know is that their management is sharp and their employees cooperative (with management, rather than antagonistic). Thus, I have to believe they would have come up with something.

 

[JS]

Thats the point! They did win the fuel lottery!! BIG TIME!!! Hedges have traditionally given preditability and stability to an airlines fuel purchases. In the case of WN, it gave them a tremendous WINDFALL! If they paid "Pump" price and everything else stayed the same as stated on their 1st qt financial statement, WN would have suffered a whopper of a loss!
Now the key phrase is "if everything else stayed the same". We all know that if the hedges did not exist WN would have taken action probably in the form of higher ticket prices which would have benifited everyone else in the industry.

DISCLAIMER: I am not now nor Have I ever been a WN hater so please don't
start jumping my S--t because I posted here!!!

[post="263953"][/post]​

Wrong. Southwest pays the same pump price as everyone else. What Southwest did is invest lots of money in oil-related investments such as heating oil that return profits when prices go up and losses when prices go down. Anyone, including any airline, can make these kinds of investments, unless you have no money to invest.

Hedging is a risk in that the investment produces losses if prices drop, but then you "make up" for that by paying lower prices at the pump. The end result is that you know with a great degree of certainty what your fuel expenses will be. Most airlines chose to take a chance that fuel prices would fall, and they lost the bet.