A instructor buddy told me we were told we would be AQP or we’d be shut down. We’re the only idiots who aren’t AQP…it was supposed to be done years ago but got slow rolled due to COVID and the FAA’s inability to do actual work outside of their homes/PJ’s.

 

People forget that by skill or luck, SWA killed it on fuel hedges during the 2000s. They made a ton of money which they used to subsidize their expansion, make money and simultaneously doing a lot damage to the yields in the rest of the industry.

This did a lot of damage in an industry that wasn’t as nimble or as lucky, or simply didn’t have the resources to hedge. But in some cases, that hedge for SWA was the difference in profit and loss, and not from flight operations or passenger revenue.

SWA rolled the dice in a big, big way, and it paid off handsomely. It was something like a 10 year hedge at close to $22/BBL, and just a couple of years later the price of oil skyrocketed (for those who weren’t around and/or paying attention, oil in 98-2001 was dirt cheap. Gas was about 1.00/gal).

They were able to turn losses into profits, subsidize expansion with cheap gas, and drive a stake through the hearts of their competitors, and leveraged the fall out from all of that for more than a decade. They were doing pretty well up until then, but this move was foundational for the next level.

Whether it was skill or luck is not really relevant, but traditionally, it’s better to be lucky than good.

 

Is Frontier AQP?

 

I was under the impression they were but if they aren’t…then we’re one of the rare few who aren’t.

 

Yuuuuuupppppp!!!!!

 

since that time they have lost more than that on fuel hedges. Back then they love to brag how smart they where , now that they are loosing money they say it is a way to set future cost .

 

I hate loose money. I usually cinch it up with a 10mm, but it seems a 8mm does these days.

But seriously. Well run businesses are successful, but sometimes they hit a natural barrier, and need some kind of significant capital infusion or other serious break to go to the next level.

That’s where SWA was in the 90s. They had just expanded beyond the Texas border states, and was running a great operation. The problem was that at the end of the 90s, so was everyone else, so they bumped into a barrier.

Then they got a huge break. Not only did they bet right on hedges, but they bet right in the most advantageous way possible. Like landing on 00. Then the rest of the industry went into the toilet in the way most advantageous way to SWA.

To be clear, the other carriers let themselves get into that position where the economy turned sour in just the wrong way to affect them most. But by hook or by crook, SWA greatly benefitted, but was smart enough to fully utilize the opportunity.

 

You may get a Christmas card from SWA management. GK may even sign it. Let's put things into context. The industry was never healthy. Even in the late 90's. Do you remember United Shuttle? How about Metro Jet? How about Continental Lite? Delta Express? All tried during "the boom". All were mature airlines. With mature costs. Operating margins were horrible. Profitable yes but not booming. SWA was way smaller and nimble. Forget the 2000's. After 9/11, 90% of the industry was bankrupt. 75% of the total seats flying were under bankruptcy protection. Yet airlines like SWA, Jetblue, Airtran expanded like crazy. Most did not hedge or small amounts(partly because they didn't have the cash like SWA). Back then, your typical customer wanted a low fare. Those low cost carriers could provide it and make money doing it. Hedging takes actual cash. It becomes an asset that has to be valued every quarter. Doesn't mean that they will spend the asset in that quarter. It's a paper profit. And most of the paper profit back when those hedges exploded in value, were never used because those contract's were locked in for specified time. Their were a few quarters when oil with the refinery cost was north of $150 buck a barrel, those hedges helped push profits on a GAAP basis but in no way did it cause SWA to explode in growth. The industry was in dire straits.

Hedges are not bets. It's insurance. Any industry that uses commodities, use it to manage cost's. Especially when it's third of your cost. Delta has a refinery to manage the crack spread. American doesn't even hedge at all. GK would tell you that he know's nothing about oil. But he would like to know what some of the airlines imput cost's are so they can price the fares accordingly. It helps with revenue management. That's all it does.

 

TED. The end of United.

 

United without U n I. Makes more sense if you work there.