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http://www.iht.com/articles/2007/11/...ess/hedge.php#
Southwest Airlines, in danger for much of this year of losing its quirky dominance over the U.S. domestic airline industry, could soon be standing, once again, head-and-shoulders above its competition.
Better service? Happier and more productive workers?
Not this time. The reason for Southwest's rapidly increasing advantage over other big airlines is much simpler: It loaded up years ago on hedges against higher fuel prices. And with oil trading above $90 a barrel, most of the rest of the airline industry is facing a huge run-up in costs, and Southwest is not.
Southwest owns long-term contracts to buy most of its fuel at the equivalent of $51-a-barrel oil through 2009. The value of those hedges soared as oil raced above the $90-a-barrel mark and they are now worth more than $2 billion. Those gains would mostly be realized during the next two years.
Other major airlines passed on buying all but the shortest-term insurance against high fuel prices, giving Southwest executives a mild case of schadenfreude....
Better service? Happier and more productive workers?
Not this time. The reason for Southwest's rapidly increasing advantage over other big airlines is much simpler: It loaded up years ago on hedges against higher fuel prices. And with oil trading above $90 a barrel, most of the rest of the airline industry is facing a huge run-up in costs, and Southwest is not.
Southwest owns long-term contracts to buy most of its fuel at the equivalent of $51-a-barrel oil through 2009. The value of those hedges soared as oil raced above the $90-a-barrel mark and they are now worth more than $2 billion. Those gains would mostly be realized during the next two years.
Other major airlines passed on buying all but the shortest-term insurance against high fuel prices, giving Southwest executives a mild case of schadenfreude....
