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  • $321 Million Profit for Southwest

    http://biz.yahoo.com/ap/080724/earns...west.html?.v=2

    DALLAS (AP) -- Southwest Airlines says its profit rose in the second quarter as the company saved money on fuel, and revenue increased 11 percent.

    The airline said Thursday it earned $321 million, or 44 cents per share, compared to $278 million, or 36 cents per share, a year ago.

    Excluding special items, Southwest Airlines Co. said it would have earned $121 million, or 16 cents per share, beating analysts' forecast of 12 cents per share.
    Yesterday afternoon I read that analysts were expecting a $80 million profit for WN. Silly analysts...
    Follow me on Twitter! www.twitter.com/flyingphotog


  • #2
    Originally posted by FlyingPhotog
    Yesterday afternoon I read that analysts were expecting a $80 million profit for WN. Silly analysts...
    Most airlines did better than analysts expected, and just like WN, guess what the reason was? Yup, fuel hedges .

    Comment


    • #3
      Hey, not bad at all! And they manage that without charging $15 for a window seat.


      And yes, I know why that is, so don't bother explaining it to me.
      sigpic
      http://www.jetphotos.net/showphotos.php?userid=170

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      • #4
        Originally posted by DAL767-400ER
        Most airlines did better than analysts expected, and just like WN, guess what the reason was? Yup, fuel hedges .
        I don't get why people here and a.net act like fuel hedges are like cheating. Other airline execs have got to be kicking themselves for not taking advantage of it. Give credit where it's due, it's a brilliant move by Southwest.
        Follow me on Twitter! www.twitter.com/flyingphotog

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        • #5
          Management is supposed to make money. If fuel hedging saves money, then its a good move.
          sigpic
          http://www.jetphotos.net/showphotos.php?userid=170

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          • #6
            Originally posted by FlyingPhotog
            a.net
            Where ?!?

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            • #7
              Wow I was really expecting a much lower profit for WN. Nice to see they are doing so well in such a bad economy.

              Comment


              • #8
                Originally posted by FlyingPhotog
                I don't get why people here and a.net act like fuel hedges are like cheating. Other airline execs have got to be kicking themselves for not taking advantage of it. Give credit where it's due, it's a brilliant move by Southwest.
                The management are certainly to be congratulated, but there is little doubt that the airline's position would have been a lot worse without the hedges. This is surely self-evident, at least to anyone without an ax to grind. What could be interesting is how many hedge contracts Southwest have written at $120-140, if you assume (as many do) that oil will be down to $110, $100 or less at some point in the near future. We are told by someone on this forum who says he works for the airline that Southwest is writing fuel hedges right up to the present. See my comment on Post #23 in the attached thread :

                http://forums.jetphotos.net/showthre...500#post480500

                Comment


                • #9
                  Fantasticly well run company. Thats a great achievement in these times.

                  Comment


                  • #10
                    Originally posted by HalcyonDays
                    The management are certainly to be congratulated, but there is little doubt that the airline's position would have been a lot worse without the hedges. This is surely self-evident, at least to anyone without an ax to grind. What could be interesting is how many hedge contracts Southwest have written at $120-140, if you assume (as many do) that oil will be down to $110, $100 or less at some point in the near future. We are told by someone on this forum who says he works for the airline that Southwest is writing fuel hedges right up to the present. See my comment on Post #23 in the attached thread :

                    http://forums.jetphotos.net/showthre...500#post480500
                    My situation with SWA is a bit different, I am not actively working for them, nor have I claimed to be as of recently including the post you quoted me on also. But am still an employee on a LOA. Moving on...


                    Yes, WN is currently working on fuel hedges, this is not inside company information it is just common knowledge that WN would not stop there.

                    I just hope that people understand that WN chose THIS type of business protocol to use fuel hedging as a form of business to help ensure profitability. WN could easily have ignored the fuel hedging and worked to improve and/or change their business plan. So when I see people claim their business plan doesn't work and is losing them money, and fuel hedge is what keeps them profitable, if you look at it like that then yes it is correct. What I am trying to get people to grasp and understand is WN would have CHANGED that business plan if the hedging was not an option and most likely charged more for the airfares or done something diff to ensure profitability. People seem to assume WN would have sat around and let their business plan keep going in this industry which absolutely most likely would have created losses for WN. This is exactly what I repeated that You quoted me at Halcyon.

                    Keynote from the article...
                    Southwest has hedged about 80 percent of its third-quarter fuel needs, down from 90 percent a year ago. The coverage falls to 70 percent next year, 40 percent in 2010 and 20 percent in 2011 and 2012 -- with steadily rising prices as well.

                    Which supports my statements I made in other post that WN is currently and will continue to write up fuel hedging all the way up to as it shows 2012. I daresay it won't stop there either.

                    Alex
                    Stop Searching. Start Traveling. southwest.com

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                    • #11
                      I was expecting that WN will have a good profit , The hedging of fuel also help them
                      Shaq Y.S.F. 737 Next-Generation

                      Comment


                      • #12
                        The concept for fuel hedging is simple. You are rolling the dice that the price of fuel will be higher tomorrow than it is today. As long as the price continues to spiral upwards, it works.

                        Here's the tricky part. While energy prices have always drifted upward, the prices tend to be unstable with peaks and valleys along the way. If fuel prices were to drop (many experts predicted a drop of up to $0.50 per gallon) and you got caught with a large percentage of your fuel purchased at a higher price than available to others, your stock holders may object to someone gambling with their money.

                        It is gambling, plane and simple. It's legal, there is nothing wrong with it provided the prices continues to escalate.
                        Don
                        Standard practice for managers around the world:
                        Ready - Fire - Aim! DAMN! Missed again!

                        Comment


                        • #13
                          Originally posted by ATrude777
                          I just hope that people understand that WN chose THIS type of business protocol to use fuel hedging as a form of business to help ensure profitability. WN could easily have ignored the fuel hedging and worked to improve and/or change their business plan. So when I see people claim their business plan doesn't work and is losing them money, and fuel hedge is what keeps them profitable, if you look at it like that then yes it is correct. What I am trying to get people to grasp and understand is WN would have CHANGED that business plan if the hedging was not an option and most likely charged more for the airfares or done something diff to ensure profitability. People seem to assume WN would have sat around and let their business plan keep going in this industry which absolutely most likely would have created losses for WN.
                          I don't believe they could "easily" have ignored fuel hedging because pretty much every airline in the world does it to a greater or lesser extent. If they had not done it, they would have been called to account for this. Now, I have no doubt that, hypothetically, if there had been no hedging Southwest would still have performed reasonably well, at least relative to competitors, given their strong track record and specific operating culture. No doubt charges might well have been higher, as you suggest. Indeed, they're already pushing up their fares (eg. no longer a $299 cap). But you do also seem to be half-conceding that the absence of fuel price hedging might have left the airline unprofitable, if I read right the piece above I have put in Bold.

                          If it is correct that they will have less fuel hedged in the next few years, they will gradually (in this respect at least) become more and more similar to all the other airlines. I am sure they will handle this, given their track record, but this will still pose a considerable challenge for them in the face of system cutbacks and keeping the aircraft fully employed, not to mention the many 737s still not delivered. It remains to be seen whether they will protect themselves more in coming years, but as I have pointed out before these contracts are not one way bets - they cost money and could go wrong. I will try to find out tomorrow the cost of a fuel price contract for delivery in 2012 at $75.

                          Comment


                          • #14
                            Originally posted by HalcyonDays
                            What could be interesting is how many hedge contracts Southwest have written at $120-140, if you assume (as many do) that oil will be down to $110, $100 or less at some point in the near future.
                            They haven't written any contracts at $120-140. They have publicly stated their hedge prices and the amount at which they are hedged. Other than that, they pay whatever the current market rate happens to be.
                            Follow me on Twitter! www.twitter.com/flyingphotog

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                            • #15
                              Originally posted by FlyingPhotog
                              They haven't written any contracts at $120-140. They have publicly stated their hedge prices and the amount at which they are hedged. Other than that, they pay whatever the current market rate happens to be.
                              How do you know that ? Atrude has been saying that they are writing fuel price contracts right up to the present. I'm not sure if that's true, since I think very few airlines are doing this at current prices this year, so I would agree that they may not have done so at such prices.

                              This is what we know publicly, based on the last statement issued today :

                              ""The current market value of our fuel derivative contracts for third quarter 2008 through 2012 is approximately $4.3 billion as a result of the extraordinary increase in fuel prices this year. In addition to our third quarter 2008 derivative contracts, we currently have derivative contracts for approximately 80 percent of our estimated fuel consumption for the fourth quarter 2008 at an average crude-equivalent price of approximately $58 per barrel; approximately 70 percent in 2009 at an average crude-equivalent price of $66 per barrel; approximately 40 percent in 2010 at an average crude-equivalent price of approximately $81 per barrel; and over 20 percent in 2011 and 2012 at an average crude-equivalent price of approximately $77 and $76 per barrel, respectively.""

                              Note the word "average". So for 2011 they are today 20% hedged at $77. Since the Q2 period to which this report relates they could have bought more individual contracts at higher prices, eg. up to $120-plus, or not. If not, and they don't buy any more, they are exposed. Unless, that is, the price falls well below $100 again by 2010 - which some people are indeed forecasting. That might well be a risk worth taking, but.....who knows ? I also think that the cost of buying contracts for oil for delivery 3-4 years down the track at, say, $75-100 is very high indeed : while oil may well dip in 2009 and 2010, the consensus seems to be that high oil prices are with us for ever longer term.

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