Weatherboy

It looks like CO has been doing a great job of keeping the company financially fit in these times of rising fuel and labor costs. At least thats what I've been led to believe from reading this board and their press releases.

However, CNBC today discussed the rising price of jet fuel and how Southwest's fuel hedges are fantastic and will keep their carrier soaring...while other carriers like Delta will fold.

http://moneycentral.msn.com/content/P127889.asp

While I understand the precarious position Delta is in (I think if someone sneezes in ATL, the airline will fold), I didn't think CO was in that bad of a position ...and also didn't think Southwest was in that good of one (I thought they weren't able to bargain fuel as good as they have done in the past.) The line that says "The same is true if Continental fails" in the article raises the most concern/suspicion.

High fuel prices are bad for everyone, but does it really put Southwest in that much of a better position than CO?

otralot

SW can't lose in this situation. If fuel costs rise for other airlines their's don't They can compete agresively on fares and hurt their competitiors. I suspect they would be selective her and I don't know how much they compete directly with CO. Others--US especially and PIT-would be hard hit by that.

Also, if other carriers raise fares and SW goes along they increase revevue faster then expenses rise and ipso changeo they have more profit.

I do wonder if CO fuel supply at IAH will be impacted (although ther must be refineries around there) and CO does a good business out of MSY so the general economic downturn might hurt. OTOH, IAH looks a big staging area for the recovery so maybe in short term build business.

MBM3

Southwest's fuel hedges have enabled them to keep their costs drastically lower than any of the other US airlines. Given what I am seeing on the market news today, avgas prices are going to skyrocket even more unless the US Government dumps a lot of barrels from the SPR. Remember, even slight increases in fuel costs can make a million $ a day difference on the bottom line. Frankly, considering the impending fuel crisis caused by the lack of refineries as well as the upcoming change in bankruptcy law, I foresee NW and DL filing for protection in the next couple of weeks.

And, IMHO, it is highly possible that we will have a transportation crisis as the remaining carriers will have no choice but to park planes in the desert as they are unable to afford or find avgas to fill them. Or, nobody will be able to afford the resulting fares.

HMizzle

I still think there should be a cap put on profits for the oil companies. That and we need to make it easier for companies to build more refineries. There is so much red tape it is damn near impossible and or costly to build a new refinery.

HobokenFlyer

I thought the bankruptcy law change was only for indivudual bankruptcies; but the corporate law is staying the same.

- HF

bocastephen

Hedges won't help anyone if they can't get their hands on fuel at all. The DL board was reporting earlier that enroute fuel stops were added for some flights at CVG because there is an expected shortage of fuel at ATL.

The price changes we are seeing now are profiteering...given the depth of the crisis and its potential to launch us into a recession or cause civil disruption, there needs to be better efforts to stabilize prices and work on restoring supply.

This forum isn't the place for politics, but I have to say the way things are going, it appears someone is fiddling (or strumming a new guitar) while rome burns.

xFF

http://www.usatoday.com/money/compan...tcy-usat_x.htm

cigarman

That is incorrect. True WN might have difficulty flying the planes. However, the fuel must be delivered at the contracted price or the contract must be repurchased at market negotiated price. So southwest could effectively "sell" each contracted barrel of oil at say $70 a barrel back to the writer of the option. Thus they would have a profit of about $44 a barrel they control. that profit would make the shareholders happy. There is a differnce between being a customer and a shareholder.

CO FF

Maybe a "Windfall Profits Tax"?

See Energy Taxes and Subsidies: A Report to the Energy Policy Project of the Ford Foundation written in 1974, at http://www.fordfound.org/elibrary/do...s/0153/toc.cfm

"In economics "windfall" means being paid generously for what you were going to do anyway. The function of rising prices is to bring about new production, as demonstrated by crude oil price increases in late 1973 that brought about a flurry of activity to increase output. Increased output, in turn, increases wealth in a society as long as a buyer is willing to pay more than the cost of producing a product. An excise tax that ignores cost will irrationally limit output in cases where there are no windfalls. The tax benefits, on the other hand, will continue to make a large part of the true windfalls tax-free." (Chapter 5, at page 84)

Why don't we talk about effective ways to incentivize efficient use of fuels first? (Disclosure: My wife's car is a Prius.) Buses & Trains need to be protected and valued; government buildings should have a mandatory design component of solar collectors, especially in places like LA, Phoenix, etc.; gasoline taxes need to be increased (or vehicles assessed on their EPA ratings, with lower MPG translating to higher car taxes).

The airline industry is, net net, a very efficient user of fuels. But look at the parking lots and highways leading to the airport for the real culprit...our national car obsession.

Russell745

I know this doesn't belong here (so moderator you can delete this if you see fit) but the above statement just reminded me to "Boycott Citgo".

Venezuelan government owned. Well intentioned low prices but big problems down the road.

Forget N.Korea, we'll have a hand in Venezuela next.


I hate to get political...sorry.

SlickRick

No you're not or you wouldn't say it.

LOL!!!

IAH_FLYER

I think Continental will definitely be out of the picture before the year is out. Everyone should spend their miles (even if EasyPass) before it's too late.

n.b. this topic reminds me of something you'd see on FoxNews.

mbreuer

I doubt it... they won't go before NW, Delta, etc. The fuel prices affect everyone except for Southwest. Southwest doesn't have enough capacity to meet overall travel demand, and if they did I doubt they have enough fuel futures to account for increased capacity. Look for reductions in service on airlines/aircraft with the highest fuel costs (Like NW DC9s). Fewer available seats will lead to higher fares. CO should be OK in that scenario. Not sure about NW or DL.

Billiken

CO will survive.

bocastephen

DL should be in BK court shortly. I hope for them it's ch11 and not 7. They will be hit the hardest - extreme overcapacity, razor thin margins and bleeding so much red I cant see how they can even stabilize their losses.

There is so little fuel available to them in ATL, DL is adding enroute fuel stops for many of their longer distance flights - which further increases costs.

CO is going to be pinched, like everyone else, but they are in the best financial position of the majors - not to mention the oil industry represents some of their best and most loyal customers. Oil execs want their upgrades too - so I am sure they will be keeping the spigots open to fuel CO aircraft.