Originally Posted by
Weatherboy
While it's great if it works, I don't think luck with fuel hedging translates to good business. I think it translates to good luck. Hedging is nothing more than glorified gambling of a commodity and Southwest had an incredible long run with good luck. And good for them --Im glad they were able to keep their fuel prices in check for so long.
But something is awry with the industry if you need a major element of gambling on your #1 expense to maintain profitability.
I think you are overstating the case. Properly done hedging is just that, a hedge. As far as I can tell, WN isn't making outsized bets on fuel in an attempt to make a profit on the hedge itself, they are using hedges to manage the risk inherent in buying a commodity. I don't consider that gambling anymore than I consider sitting around and doing nothing gambling.
Even at WN, fuel costs (inclusive of hedge costs) was 35% of expenses during 2008. Even during the cheap oil days of 2004, it was 18%. What kind of company doesn't try to manage the inherent pricing risk for 20-35% of their expenses? At the end of the day, the airlines have two options with regards to fuel: hedge, or cross their fingers and pray. Choosing to hedge is no less a part of running an airline than choosing not to hedge (or route planning, or product choices, or fare structure).