[advancedatheist]

I've read that Southwest keeps making money while other airlines continue to fail because it has secured a hedged jet fuel supply. Doesn't this just shift the financial losses to the companies that sell jet fuel to Southwest at below their current costs?

[some_guy282]

Wasn't Delta (or one of the other airlines now bankrupt) doing this last year? I remember reading that they were hedging their fuel costs, and this limited their financial losses. Of course the hedge contracts ran out, and the price they had to pay for fuel soared.

[advancedatheist]

What happens if the companies supplying jet fuel at below-cost prices have to declare bankruptcy?

[fossil_fuel]

is it the companies that sell the fuel that lose money, or did southwest just buy some futures contracts on the NYMEX as a hedge?

[falser]

$this->bbcode_second_pass_quote('fossil_fuel', 'i')s it the companies that sell the fuel that lose money, or did southwest just buy some futures contracts on the NYMEX as a hedge?

[Eli]

Yes and they actually take delivery.

[MacG]

Ahhhww...

Spot prices are a bit delusionary. Only a couple of percents of all oil is traded to spot prices. The majority is traded on longer contracts at significantly lower prices. It take a couple of years to work the spot prices into regularly delivery.

[Kingcoal]

Southwest sounds pretty damn savy to me.

[AirlinePilot]

Delta managed to take a fairly positive situation in cash on hand and route strengths and piss it away after 9/11. They increased the number of Regional Jets (at great expense and debt load) while failing to focus on revenue improvements in the mainline. Over the two year period after 9/11 they hocked just about everything at the company to pay for operations not covered by cash flow. They failed to hedge aggressively when they had the oportunity and once we really needed it they HAD to sell the hedges to generate cash for operations. After 9/11 we were a rudderless ship in the leader department(still are) and failed to quickly do what was required to solve a bunch of problems. It took the new management 9 months to figure out what needed to be done. IMHO it should have been done in two weeks and it would have been bloody but we would not be in the boat we are today. We are at the mercy of the Judge in bankruptcy.

No one in the industry hedged like SW did starting a few years back. I am convinced they had a few savvy management types who were responsible for convincing the CEO and BOD that this fuel thing was coming (Peak Oil) and this was a way for them to stay ahead while its still possiblel. I believe with oil above 65-66$/bbl the hedges are moot. Still helps just not very much. They admit that without this they would be losing big also. All the major airlines will have to do something at some point, sooner than later, to up the cost of traveling so we can cover the cost of operations and make some money. Until then more are going away and consolidation will take place.

Im not sure whose uniform I'll be wearing next year.

[gordito]

You should start looking at the low-cost airlines. My guess is that one of the big three will become history by the middle of next year.

[Peepers]

Yes, too many airlines are run by buffoons these days. Yes, the majors have inflated cost structures that prevent them from competing with the low-fare carriers. But there's one factor people often miss out on, though it's usually because we look for one transportation mode to solve its problems without the help of a different mode....

The airlines' switch to hub-and-spoke networks post-deregulation is a big factor. Airlines like Southwest don't do hub and spokes, instead focusing on a mainline route structure (similar to how airlines did things before dereg). Either way, it's the short-hop flights that are helping to kill the airline industry, especially in a high fuel-cost scenario. Few flights are more fuel-inefficient than those on routes of 300 miles or less. Yet, in the U.S., these flights are absolutely necessary to feed traffic into the hub-and-spoke system. They were loss leaders for the airlines before fuel prices began going up two years ago. Today, they are bleeding the industry.

It's not luck or irony that in Europe airlines are doing considerably better than their U.S. counterparts. Indeed, as an industry, European airlines are breaking even. Admittedly, there are numerous factors for this. But I contend an often-overlooked reason is that European airlines don't have to operate as many short-haul flights as are required in the U.S. The reason?

Europe has extensive high-speed rail networks. Not only do train services stop at stations in the basements of major airports, they offer through ticketing and checked baggage with a number of airlines. There, trains are considered connecting flights. While airplanes are least efficient in markets of 300 mile or less, that's where fast trains are most efficient.

There is no reason why airlines should be flying planes between Cleveland-Columbus or Cincinnati, Pittsburgh-Altoona or Harrisburg, Chicago-Detroit, Seattle-Portland (Ore.), or Los Angeles-Las Vegas (the busiest travel market in the U.S.). Well, actually there is a reason -- our federal government has no policy for building high-speed rail, and thus, no funding.

Aviation and high-speed rail should be working together for achieving such a policy, so they can cooperate as part of an interconnected, successful, transportation system that no longer bleeds taxpayer funding. Instead, both systems are fighting for their very lives. What did Thomas Jefferson say about hanging together or we'll surely hang apart?

[emersonbiggins]

I couldn't have said it better myself, Peepers.