Originally Posted by
Mesabah
I don't get what benefit the fuel hedges even have. Mainly because, ever since they started hedging it, it seems profits have been going down. Southwest is still offering $29 fares....that's just crazy. I know commitment to your customer is one thing. However, as a company, shouldn't southwest be maximizing profits to ensure even greater safety going into the future?
Great question! It's my belief that the hedges are being used strategically. I think that it is allowing us to build market share going forward thus reducing competition. When we do raise fares, there will be less competition on our routes to exert downward pricing pressures resulting in higher yields. Disclaimer: I do not presume to me as smart as our SWA leadership team. This is just my take on it.
I think some of us do similar things in our personal financial lives. I save 25% of my gross income (my hedge) for retirement. If I didn't save anything, there would be more to spend (higher yields) for my family members (shareholders) but I'd be 'out of business' when I retired. By being lean now, I am planning to be able to maintain my current income in retirement and leave my children windfall profits (inheritance or 'return in invested capital).