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Old 01-18-2006, 02:21 PM   #1  
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Default Fuel Hedges Save Southwest

Ok, Recently I have been saying that Southwest has been able to lead the industry primarily because of fuel hedges. That does not imply that Southwest is not more efficient than others, it simply implies that they have an advantage from fuel hedges. Furthermore, when those hedges run out, Southwest will no longer be invincible, and pilot salaries will probably be number one on the expense trimming sheet.

After arguing this point with many, today I found the actual evidence that I knew existed all along:

Southwest's 4th Quarter profit = $86 million dollars
Southwest's 4th Quarter fuel hedging savings = $258 million dollarsa
86-258 = $172 million dollar operating loss (Without fuel hedges)

Now I think it was a good decision by Southwest to hedge fuel prices, and it is the primary (actually the only) reason I bought their stock in 2003. But the fact remains that those run out soon, and Southwest who has barely been turning a profit will soon be losing money, and needing to cut expenses.

See this website for the evidence.
http://news.moneycentral.msn.com/tic...&Symbol=US:AMR
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Old 01-18-2006, 02:49 PM   #2  
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True SWA has benefited from fuel hedges, but keep in mind that they were in put in place by a forward thinking management.

When the hedges run out, I think we'll see additional creativity from SWA in controlling costs. The most obvious (and apparently popular) way to cut costs is to attack union contracts. SWA seems to view their employee groups as an asset, so it'll be interesting to see how they approach this [if that's how they choose to cut costs].

my 2 cents.....
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Old 01-18-2006, 03:48 PM   #3  
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Default The Sky Is Falling! The Sky Is Falling!



Southwest hedges are going to run out and they'll lose money. There must be a parrot flying around the U.S. preaching this on every corner. Maybe they will lose money when the hedges fully run out in 2010. If you don't work there why do you care? If Southwest can't make money at market fuel prices what makes you think any other airline can?

Ryan, concetrate on flight instructing and just hope there's a healthy airline in existence when you have the flight time to apply. Oh, and send me your top 10 stock picks. LOL

Take care....

Last edited by Brown Dog; 01-18-2006 at 04:06 PM.
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Old 01-18-2006, 04:38 PM   #4  
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Quote:
and Southwest who has barely been turning a profit will soon be losing money, and needing to cut expenses.
Fares will go up. Wouldn't bet on salaries coming down.
And about your stock picking! Man, if you'd invested 10k in LUV in'03.....and sold recently....you would have made over 5k...


But, with a little home work in '03, you could have invested that 10k in CAL.
If you would have "rung the register" a couple of weeks ago....you'd made about 35K.
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Old 01-18-2006, 05:28 PM   #5  
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Last edited by LuvJockey; 01-18-2006 at 05:42 PM.
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Old 01-18-2006, 05:31 PM   #6  
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Last edited by LuvJockey; 01-18-2006 at 05:43 PM.
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Old 01-18-2006, 05:33 PM   #7  
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Quote:
Originally Posted by ryane946
Ok, Recently I have been saying that Southwest has been able to lead the industry primarily because of fuel hedges. That does not imply that Southwest is not more efficient than others, it simply implies that they have an advantage from fuel hedges. Furthermore, when those hedges run out, Southwest will no longer be invincible, and pilot salaries will probably be number one on the expense trimming sheet.

After arguing this point with many, today I found the actual evidence that I knew existed all along:

Southwest's 4th Quarter profit = $86 million dollars
Southwest's 4th Quarter fuel hedging savings = $258 million dollarsa
86-258 = $172 million dollar operating loss (Without fuel hedges)

Now I think it was a good decision by Southwest to hedge fuel prices, and it is the primary (actually the only) reason I bought their stock in 2003. But the fact remains that those run out soon, and Southwest who has barely been turning a profit will soon be losing money, and needing to cut expenses.

See this website for the evidence.
http://news.moneycentral.msn.com/tic...&Symbol=US:AMR

Ahhhh, math in public from an en-gin-eer, gotta LUV it. Only in your world is $548 million barely turning a profit. You've been saying SWA has been losing money ex-hedges in prior quarters, which isn't true, but you are probably correct if you are saying SWA lost money ex-hedging this quarter. Your math is bad, though, because you're including corporate taxes that SWA paid on those fuel hedging gains, as well as profit sharing that SWA is paying to its employees on that gain. I haven't done the cipherin' yet, but I'm guessing an ex-hedging loss of around $50 million. You're also failing to realize that SWA's RASM was up just about 12% this quarter, which would be more than enough to cover the decreased hedging for all of 2006. Geez, next year, it'll be "If SWA was paying as much interest on their debt as other airlines, they'd be losing big time!" Anyway, please, if you have a job, stay there and be happy with your decision, just don't try to talk down a company that's doing well, or try to suggest that SWA's pay will someday inevitably come down to make yourself feel better about it.
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Old 01-18-2006, 07:17 PM   #8  
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Default Stock Picks

Quote:
Originally Posted by Brown Dog
Oh, and send me your top 10 stock picks. LOL
Sorry, I can't resist. My two pics:
1) Dow Jones Industrial Average (I see it going up 10% by spring next year)
2) Comcast: Almost an exclusive cable monopoly in many markets. Offers high speed internet, cable TV, and phone. By 2009, all television will be offered on digital cable (As the FCC is selling off analog television airwaves)
This means every household in America which currently does not pay for television will need to subscrible to digital cable! Comcast is currently undervalued near its 52 week low. It made a 13.2% increase in income in Q3 2005, a double digit percentage gain for the 20th consecutive quarter!!! This company is strong.

Hold onto these stock picks, along with the "I TOLD YOU SO" about SW losing money. Take a look at the Dow Jones by Spring 07, and Comcast by Spring 09.

My picks!

Last edited by ryane946; 01-18-2006 at 07:25 PM.
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Old 01-18-2006, 08:12 PM   #9  
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Why would any pilot hope for the ultimate demise of another airline or another pilot's career who happens to be doing well? How does that help any situation currently existing within the airline industry? With so many complaining about the problems and pilots taking lower paying jobs and thus hurting the industry, there seems to be a great deal of pilots who just cannot wait for SWA, JetBlue, or in the regional world, ExpressJet to go under, or start loosing money. Realize that if that happens, things only get much worse!
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Old 01-18-2006, 08:57 PM   #10  
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Default Stock Picks

Sweet! Thanks Ryan. I should be retired by 2009 with your advice! Now remember: Tune, Time, Twist, Throttle, Talk.......

Good luck!

Brown Dog.
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