fuel hedges
 

NEW YORK, March 13 (Reuters) - U.S. airlines hedge their expectedjet fuel purchases to protect themselves from rising fuel costs. A hedge typically involves buying a financial contract in a relatedproduct such as crude oil CLc1 or heating oil HOV7. The financial gainsfrom those contracts, when the price rises, can help offset higher costs forjet fuel, which vies with labor as an airline's largest expense. Other hedging strategies include so-called "collars," which arecombinations of put and call options. They generally cost less to put inplace. Below is a table outlining the hedging positions at major U.S. airlines,arranged by size of the airline (For story, please double click on[ID:nN10602896]): PERCENTAIRLINE PERIOD HEDGED DESCRIPTIONAmerican Airlines FY 08 24 capped at an average price of(AMR.N: Quote, Profile, Research) approximately $2.31/gallon of jet fuelUnited Airlines Q1 08 15 mostly using three-way collars: upside(UAUA.O: Quote, Profile, Research) protection starting at $91/barrel and capped at $101/barrel; payment obligations start if oil drops below $86/barrel FY 08 16 mostly using three-way collars: upside protection starting at $89/barrel and capped at $101/barrel; payment obligations start if oil drops below $83/barrel; Q1 fuel cost forecast $2.74/gallonDelta Air Lines Q1 08 26 jet fuel equivalent cap $2.77/gallon;(DAL.N: Quote, Profile, Research) forecast jet fuel price $2.74/gallon Q2 08 31 jet fuel equivalent cap $2.72/gallon Q3 08 15 jet fuel equivalent cap $2.70/gallon Q4 08 10 jet fuel equivalent cap $2.69/gallon FY 09 9 crude oil call options avg strike price $2.05/gallon FY 10 2 crude oil call options avg strike price $2.04/gallonContinental Airlines Q1 08 20 heating oil collars: avg put price(CAL.N: Quote, Profile, Research) $2.25/gallon, avg call price $2.41/gallon Q2 08 5 heating oil collars: avg put price $2.39/gallon, avg call price $2.55/gallonNorthwest Airlines* Q1 08 45 no details(NWA.N: Quote, Profile, Research) FY 08 18 no detailsSouthwest Airlines Q1 08 75 capped at avg crude equivalent price(LUV.N: Quote, Profile, Research) of $51/barrel; Q1 fuel cost forecast $2.00/gallon FY 08 70 at avg crude oil-equivalent price of $51/barrel FY 09 55 at avg crude oil-equivalent price of $51/barrel FY 10 30 at avg crude oil-equivalent price of $63/barrel FY 11 +15 at avg crude oil-equivalent price of $64/barrel FY 12 +15 at avg crude oil-equivalent price of $63/barrelUS Airways Group Q1 08 50 heating oil collars: weighted avg(LCC.N: Quote, Profile, Research) range $1.98 to $2.18/gallon (or $68.79 to $77.19/barrel of crude oil); forecast jet fuel price $2.74-$2.79/gallon FY 08 22 collars: weighted avg heating oil range $2.05 to $2.25/gallon; weighted avg crude oil equivalent range $72.04 to $80.44/gallonSOURCE: Company filings. (Reporting by Chris Reiter and Kyle Peterson; Editing by Steve Orlofs

Any large organization which uses energy will hedge it's purchases in order to provide stability for planning purposes. Large capital gains or losses on the hedge are unusual, since neither the buyer or seller will knowingly set themselves for the raw end of the deal.

What is SWA's hedge against FAA fines?

I don't think you can even get insurance for that...almost anything else, but not that.

It's coming straight out of unrestricted cash I imagine. But while $10M might be a record fine, it's a pinprick to SWA...I think the repuation damage is what they are worried most about.

I hate to say it but I am not so sure the average SWA pax is truly a news follower. Unless they scroll the news of SWA groundings across the weekly NASCAR race or put it in the next issue of "Inmates and Spouses Daily" most SWA pax will never know there was a problem. It is also my reason why I think most people don't complain about SWA service. For one they don't expect much and secondly they are not the most in-tune with procedures for such a report.

When the "wife beater" T-shirt is the business power suit of your clients, a fine by the FAA will not be a big issue.

That's a little harsh don't you think? A lot of business travelers use SWA and I'm sure they pay attention to what's happening in the media. Your offensive stereotypes and generalizations really have no place in this forum.

Do you speak from experience? If not, what's your reference for an "average SWA pax"?

I don't fly SWA but I have seen your TV show a few times. Can't say I see many suits on the passenger or even on the employees. The casual look seems to have gone overboard and with the non-uniform uniforms. Not sure if the is a reflection on the passenger or the employee that triggered the look.

It's a part of their culture, just as much as suits and sarcastic comments are yours:D. But seriously, I enjoy SWA. They are one of the cheapest tickets, and the service you get is rarely boring. The people there simply love their jobs and it shows. So what's so wrong with a business model that actually works? Or would you just rather pay much more for substandard service?

I'm a DAL pilot and, due to location and family circumstances, have flown SWA (as a paying customer) frequently over the last two years. It is what it is...on time, comparatively inexpensive, good inflight service, and well-trained pilots. The MX thing is a bit troubling but SWA is a great airline. I know lots of guys flying for them and I can vouch for their professionalism and expertise. Wouldn't want to fly them coast to coast but don't have to. :)