Originally Posted by SteveinA2
This is just not true. If SWA hedges fuel and fuel decreases in price back to $35 a barrel then SWA is at a competitive disadvantage.
Hedging ensures a knowledge of future cost - it does not ensure a lower future cost
All major corps that consume commodities use hedges. It is just smart business.
Hedging insulates the corporation from significant swings in commodity costs.
Southwest does not hedge 100% of their future fuel costs. However, I believe as does SWA that $39 per barrel in 2009 is a safe bet. SWA has some of the best minds working in their fuel hedge department. That one department contributed $113 million to SWA’s bottom line in the 1st qtr. Due to increasing world-wide demand, I do not expect to see $39 oil ever again.
I agree that “Hedging ensures a knowledge of future cost of a commodity” and it does ensure a fixed future cost. I don’t see how any major airline can be competitive paying daily pump prices for their fuel.