The company has 51-percent of its 2008 fuel hedged at $111. Per-barrel prices closed at under $98 yesterday. Looking forward to 2009, the airline's fuel hedges are based on per-barrel prices of $118.
Hedging is a big roll of the dice, and no one has played it better than Southwest Airlines. It has consistently hedged more fuel than its competitors. As of this summer, Southwest has 70-percent of its 2008 fuel hedged at $51 a barrel. Compare that with American Airlines, which has 34-percent hedged hedged at $82 a barrel.
Industry analysts estimate that since 1998 Southwest has paid $3.5 billion less for fuel than its competitors. That's equal to 83-percent of its profits over the last nine years. It's a big part of the reason the airline continues reporting profits while the rest of the industry bleeds.
They're going to need to sell a lot of snack boxes to make up for that...
Airlines Hurt By Dropping Oil Prices. Huh?!! [Wired]
(Photo: FlyGuy92586 )
I don't know what the oil they hedged was at, and I DON'T want to defend UAL, but hedging is like insurance. Picking on this is like saying that you "incompetently threw money away" last year because you had auto insurance but didn't have an accident.
That said, the fact the other airlines hedged at much lower costs would say they did screw up. Maybe they didn't hedge for the longest timing and then panicked at the higher prices. Had prices dropped below SW and the others hedge positions, they would have come out ahead. It's not easy.
Evaluating hedges in hindsight is like reviewing Vegas line after the game and lambasting them for the ones that were way off.
]]>UAL wants bankruptcy so badly, it's doing everything it can to get there. There has to be a reason: they can sell slots, they can get out of deals with employees, plane leases, oil hedges. The buyer could buy the routes and all without employee overhead and poor energy management. Who knows what the benefits are, but UAL wants to happen into bankrupcy faster than they fly.
]]>TWA
Eastern Airlines
Pan Am
come to mind as airlines that couldn't manage their ways into the modern world. Several decent-sized regional carriers have cratered this year, too.
]]>@shoegazer: OR the hedging could refer to a futures hedge in which you're committed to buying at the contract price and taking the loss vs market price. I don't know why they would choose to do this instead of executing an options hedge.
]]>@humphrmi: but seeing as how Southwest and American managed to hedge at such a low price, United is still paying more than $40 above the competition. You are correct that the article is misleading though.
]]>I don't get this, Wired is usually cluefull. You can buy fuel at market prices any time you want.
]]>Sounds like time for another round of bonuses for Upper Manglement!
]]>However, in the end it's part of the risk of buying on the futures market.
]]>According to Google maps it's only 328 miles to Berlin, and you'd have to fly into KC and drive from there anyway. Why are you flying?
]]>I just booked my flight to Berlin and these guys (And Lufthansa for that matter, since the return trip is on a codeshare with them) better stay in business until at least the 2nd week of March 2009 or I'm gonna be pissed. And before anyone says "Fuck flying, drive everywhere, and I hope all of the airlines shrivel up and die" I'd like to see you drive from St. Louis to Berlin.
]]>Making E85 at home might work, but it's not worth buying at the gas stations around here. When gas was around $3.85/gal, E85 was $3.25.
But the mileage was under 20MPG with E85 while gas gets around 26MPG city. E85 was thus $0.1625/Mile and normal gas is $0.1480/Mile. Add the cost of the conversion for your car and you're even further under.
]]>www.efuel100.com
I bet United wishes they could run their planes on homemade moonshine too!
]]>We had a plain variable-rate mortgage and paid it off. We have friends who have endowment mortgages which turn out not to be fully covered by the redemption value of the fund at term. Friends who have fixed-rate mortgages and are locked in at a disdvantageous rate. Friends who have fancy pensions which turn out not to be worth as much as they expected and so on.
Presumably this generation will now be wary of coplexity and opacity, but there'll be another lot of gullible punters along soon enough.
]]>Prices will rise once the election is over.
High Gas prices = mad voters
]]>I'm shocked. SHOCKED.
]]>I think it's clear that fate wants this airline to go out of business.
After my experiences with United, I think I agree with fate.
]]>@Parapraxis:
Actually, you can do something close to this.
A man can dream...*sigh*
]]>No. Just run of the mill incompetence.
UAL has had miserable leadership for a very long time. Failed mergers, bankruptcies, and miserable employee relations.
Bad employee relations generates less-than-stellar service. Some employees still try pretty hard to keep people happy.
]]>