He contended that the price of fuel “hasn’t been
that volatile if you go back the last three or four
years,” adding, “Te best time to hedge was 2002
to 2008-09, but after that hedging got turned
upside down … My guess is—over the last four or
fve years—if you hedged, you lost.”
Southwest chairman, president and CEO Gary Kelly,
speaking at the end of 2014 to Te Wings Club in
New York, acknowledged that the Dallas-based airline
is not getting the full benefts of lower oil prices because of its hedging program. Te carrier took a $251
million mark-to-market fuel hedging hit in 2014,
but nevertheless spent 8.2% less (including hedging)
on fuel for the year and earned net income of $1.14
billion, its highest-ever annual net proft.
Fuel hedging has benefted Southwest in the
past and Kelly said he doesn’t regret hedging even
when oil prices dip unexpectedly. “Hedging is not
intended to be a money-maker,” he said, calling it a
form of “insurance” that, like all insurance, comes
with a cost. “Our hedging program is designed to
prevent catastrophe,” he explained.
Airlines like Southwest and Delta, while making adjustments to fuel hedging contracts, have
not signifcantly altered either their fuel hedging
or capacity strategies based on lower fuel prices.
Similarly, airlines like American and Allegiant are
not letting the lower fuel prices tempt them into
the hedging game.
JetBlue Airways has an estimated 17% of its fuel
needs hedged for 2015. Te New York-based carrier
is staying the course both on hedging and capacity
(slated to increase 7%-9% for the year)—in efect,
the airline’s management is pretending that oil
prices are well above the current market rate. “Our
business plan assumes much higher [fuel] prices,”
JetBlue CFO Mark Powers said. “We won’t change
our business plan based on a drop in prices that
could prove to be very short-term … Te hedging
strategy seems to be working really well for us. We
continue to think of it as a tool in the tool kit. We
see it as a short-term form of insurance.”
Delta CEO Richard Anderson is on the same
page. “We actually use pretty high fuel prices in
all of our planning,” he said. “Planning with a low
fuel price will only disappoint.”
Kerr said Dallas/Fort Worth-based American
sees no reason to begin hedging now, and in fact
cited low oil prices as a reason not to hedge:
“Oil prices are less, so the downside is less if
Quote of the month
“If there is a vision
for aviation, we
don’t know it yet.”
—EU policy analyst James Sibley on growing concern
the new European Commission leadership is not
making the airline industry a priority.
HOT TOPICS: READER COMMENTS
FROM OUR WEBSITE
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calmly do the engine failure checklist and secure the engine.
With the auto feather function working, there was minimum
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Blog: US carriers should tread carefully in their anti-Gulf carrier campaign: Putting across stumbling blocks for others is a
surefre method of tripping oneself and that is precisely what
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Blog: Missing the Tiger: I can tell you that the [Flying Tigers]
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Express. It may be on other places, but I work at a ramp and
see it regularly.
All-business class airline La Compagnie plans to double feet
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If the service operates every scheduled day and reasonably on
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Rolls-Royce and Airbus can and will do it. They also need to
stretch the aircraft to provide the ATKs required to make it a
truly viable airplane.