Originally Posted by sarcasticspasti
hedges are insurance. They are a relatively small expense, especially for a company with great credit and lots of cash like LUV. You still buy insurance for your house even if you don't plan on burning it down. LUV has always bought this insurance, they didn't have a crystal ball or read Nostradamus' prophecies in the Weekly World News, it just really paid off this last year. Nobody was calling them a genius for hedging their fuel 5 years ago. And yes, they probably are hedging fuel at $60, $65 and whatever else because it can always go higher. Hedging allows them to accurately predict their costs five years down the road and manage their pricing and expenses accordingly. Most airlines can barely plan for next quarter.
The point was that SWA's big advantage is evaporating over the next few years. The only way they could maintain it is to hedge at lets say $65 and then have the market go up to $90....
But with the current volatility of energy, even getting a semi-long term hedge at TODAYs price is going to cost you...
Remember, somebody somewhere had to buy oil at $70 and turn around and sell it to SWA at $25... and they're not going to want to do that sh*t again...