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Southwest Reports Net Loss Due to Fuel Hedges

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Southwest Reports Net Loss Due to Fuel Hedges

Old 10-16-2008, 06:16 AM
  #11  
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Originally Posted by fit29 View Post
Its just a paper loss, excluding "accounting charges" it is still a 69 million dollar profit

http://www.nytimes.com/2008/10/17/bu...3E%3C/TABLE%3E
A loss is a loss, no excuses. SWA will retrench and succeed, that's what they do. Please don't try and minimize this loss. This is a big deal any way you spin it.
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Old 10-16-2008, 06:23 AM
  #12  
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Ewr,
That's the big difference between you and every Southwest guy. When Continental or anyone else loses money, you never see a Southwest guy gloat about it or say "welcome to the party". You, my friend, should be ashamed.
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Old 10-16-2008, 06:25 AM
  #13  
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well said, ftr,

as the old saying goes misery loves company
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Old 10-16-2008, 06:37 AM
  #14  
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Originally Posted by ftrplt18e View Post
Ewr,
That's the big difference between you and every Southwest guy. When Continental or anyone else loses money, you never see a Southwest guy gloat about it or say "welcome to the party". You, my friend, should be ashamed.
The BS flag has just been raised. Stay on these forums for long enough and you will see the random possibly SWA guy have the little dig here and there.
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Old 10-16-2008, 07:03 AM
  #15  
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Actually this is very significant... SWA has the vast majority of its fuel hedge in the 50-60$pbl range, and took a loss. Call it what you want, it is still a loss. If you have to pay money to buy hedges that is still money even if you don’t use the fuel now. DAL said they could turn a $200M 4Q 08 profit if they could pay current spot fuel price today. However they know the must spend money to hedge the future, so they plan a modest loss to even in Q4 08.

SWA costs are very very high per ASM. Most all the legacy carriers (well maybe not UAL) can make a large profit at 70$pbl not to mention a huge profit at 50-60$pbl even in a slow economy. SWA CANNOT.

Welcome to the real price of oil and welcome to the BIG SHOW SWA.

I think you will see changes on the horizan at SWA!!!
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Old 10-16-2008, 07:06 AM
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Originally Posted by ewrbasedpilot View Post
This CAN'T be true. SWA will NEVER lose money according to some on this forum.............. Welcome to the party guys.............

And NO, I don't hate SWA.... I have a lot of good friends there. It's just that many thought this day would never come.....and low and behold, it did. (At least the numbers aren't that bad....yet). Kinda like getting sucker punched, isn't it?
Continental Airlines :: Continental Airlines Announces Third Quarter Loss

might wanna take care of your own house.
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Old 10-16-2008, 07:07 AM
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Does anyone possibly think this loss might have something to do with the pilot contract negotiations at LUV? I am sure not but at other carriers that would be standard strategy.
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Old 10-16-2008, 07:19 AM
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By TED JACKOVICS | The Tampa Tribune

Published: October 16, 2008

TAMPA - Southwest Airlines, the busiest carrier at Tampa International Airport, reported its first quarterly loss in more than 17 years after taking a $247 million special accounting charge on its fuel hedging program for the period ending Sept. 30.

The Dallas-based airline said it achieved an operating profit for the 70th consecutive quarter, but the special charge resulted in a $120 million loss, or 22 cents a share, for the third quarter.

Southwest's fuel hedging program to arrange contracts years in advance for large percentages of its fuel supply has helped the airline surpass all other domestic carriers remaining profitable in recent years.

However, with fuel prices declining to the $70 a barrel range, Southwest had to adjust its accounting to write down fuel hedging contracts that have become less valuable as crude prices decline.

Chief executive Gary Kelly told financial analysts in a conference call this morning that post-Labor Day revenue trends are strong. He outlined several steps in moving forward:

• Trimming capacity growth (numbers of seats available) to less than 2 percent the remainder of 2008.

• Trimming unproductive and less popular flights and reallocating capacity to attractive markets, including Southwest's newest city, Minneapolis-St. Paul.

Gradually increasing fares.

• Aggressively promoting Southwest's "No Hidden Fee, Low Fare" brand.


Reporter Ted Jackovics can be reached at (813) 259-7817

So EWR and other naysayers, any management team that can make a profit for 70 quarters in a row (this is not the first LUV loss) is pretttyyyyy sharp. So for one quarter they missed. Wooop deeeee doooooo. Everyone in the oil market knows this was a wild year in the oil market. I wish SWA management had an investment group <g> They have done better than my financial advisor <ng>. Notice that they still had an operating profit on their operations and also notice the opposite of your analysis since they will be "gradually increasing fares" not lowering per you estimate.
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Old 10-16-2008, 07:19 AM
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Interesting accounting rules...you have to subtract 10%on fuel hedges from your operating profit. Even though they are still worth $2.5 BILLION. Weird....

Southwest Posts Loss on Hedge Charge

By MICHELINE MAYNARD
Published: October 16, 2008
Southwest Airlines said Thursday that it lost $120 million in the third quarter, its first quarterly loss in more than 17 years, because of a noncash charge to write-down the declining value of its hedging contracts for jet fuel.
Go to your Portfolio »


Southwest said it took a one-time charge of $247 million, reflecting a steep decline in oil prices, which hit record levels in July. The last time Southwest lost money was in the first quarter of 1991.
Without the charge, Southwest said it had earned $69 million. That figure beat analysts’ expectations for the quarter. The airline had record operating revenues of $2.9 billion, up 11.7 percent.
On Wednesday, Delta Air Lines reported a net loss of $26 million for the quarter, while American Airlines lost $360 million. Continental Airlines said Thursday that it posted a third-quarter net loss of $145 million, not including extraordinary items. Continental earned $241 million in the quarter a year ago.
Throughout this decade, Southwest has been the airline industry’s most aggressive player in purchasing contracts to guarantee the price of fuel. It has contracts covering part of its fuel purchases through 2012, and has begun buying contracts for 2013.
The practice seemed particularly prescient earlier this year, when fuel prices nearly doubled compared with 2007.
In past quarters, Southwest has booked millions of dollars in gains because it paid far below market price for fuel.
At the end of the second quarter, those contracts, which stretch through 2010, were worth $6 billion. But at the end of the third quarter, the value of the contracts had dropped to about $2.5 billion. The contracts’ value reflected the drop in the price of oil, which peaked at $147 a barrel in July, then fell to $80 at the end of September.
Under federal accounting rules, Southwest must exclude about 10 percent of its future contracts, and value them at current prices.
When fuel prices are rising, the practice can be beneficial. Indeed, Southwest booked a $511 million gain in the second quarter because of favorable swings in its contracts. But when prices drop, a company is required to take a charge reflecting the decline.
Southwest said it had hedging contracts in place for 85 percent of the fuel it planned to purchase in the fourth quarter; 75 percent of its 2009 fuel and 50 percent of the fuel it planned to buy for 2010.
Gary Kelly, the chief executive at Southwest, said he was not discouraged by the loss, which came in one of the most challenging periods for the industry. “Overall, declining fuel prices are a very good thing for an airline including Southwest Airlines,” Mr. Kelly said in an interview.
Mr. Kelly called the charge a “fluke” saying that Southwest did not anticipate that any future swings in oil prices to be as dramatic as in the second quarter.
He said he was pleased with the airline’s operating profit, and said he expected the airline could maneuver through the nation’s economic crisis.
“The world is on fire, and we’re in pretty good shape,” Mr. Kelly said. “We’re going to fight hard to blast through the headlines.”
Southwest shares closed down 6.17 percent Wednesday, to $11.56.
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Old 10-16-2008, 08:05 AM
  #20  
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I think this explains why we all decided to be pilots instead of accountants.

Despite the nay saying, I don't doubt any other airline would love (or should I say "LUV" to trade places and have Southwest's problem(s) this quarter.

Maintain Situational Awareness: Lower oil prices will cut costs and inprove profits--for everybody--and may even help the entire economy to turn around. Both are really, really good things for this industry.
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