InkUnderNails

I post this here as WN is famous for hedging oil to their advantage. So, I have three questions:

Will we see specials and spot fares lower due to cheaper fuel? (I say no as demand for seats is high.)

Will there be a flattening of increases? (I give this one a maybe.)

Will WN again hedge to score an advantage on other airlines? (Should, but probably won't.)

In a bow to Scotty, let the speculation begin.

rsteinmetz70112

I think the current limit on competition is airframes. Southwest doesn't have enough to do what they want and they aren't alone. Other carriers would be able to take advantage of the current high fares but don't have the planes to enter new markets.

I don't see fares dropping unless more seats are available or demand drops.

I wonder if dropping oil prices make them with they'd kept the 717s?

Recently retired older aircraft may become profitable again at current fares and fuel prices. I'd expect retirements ot slow and see some fleet growth.

By The Way. How many destinations does Southwest currently serve?

At the time they bought Airtran the total was I think 109 combined. A few months ago it was above 90. Yesterday I saw a sign touting Rapid Rewards that said 85+.

joshua362

History has shown us that any quick decrease in oil is only temporary and will last until one middle east country lobs a rock at another and traders will use that as an excuse to proclaim an upcoming disruption of supplies although it never does. What takes many months to trickle downwards can be erased in weeks.

The little dirty secret no government every investigates or stops is that when oil drops, it takes 45-60+ days to show up as a benefit to the consumer since it takes that amount of time to be refined and delivered to retail outlets.

When oil increases, the increase is immediately posted at retail with the rationale that "we need to pay market prices for replacing the existing supplies".

Doesn't take an Accountant to figure out we pay twice for every oil increase.

As for WN, I agree they seem constrained by the number of aircraft, my home market of ISP has suffered greatly and short term fares are more about the capacity and competition rather than oil cost which is absolutely crazy but par for the industry...

Much like WN's ill fated plan to pump up schedules overnight without having the physical aircraft to do so, how do they retire most of an airlines fleet without obtaining a complementary number of replacements and hope to serve the same # of destinations? And start International service but ignore the experience they bought from AirTran? This Management has got to go.

My cynical speculation has begun!

hazelrah

Why should they? American/US has completely unwound its hedges, for instance.

steved5480

1. No/minimal of any significance. Loads are at record levels. Business is booming. Life is good.

2. Agree with the wise OP. Yes/maybe.

3. Again, agree with the very wise OP. Unlikely, at least to any massive extent like SWA had several years ago. Probably should but probably won't. First & foremost, The Company has been and currently still is run by a Beancounter. Customer service treatment/understanding (or the perceived lack thereof) aside, The Man is highly intelligent & would likely be back into the hedging business if it was deemed to be business-savy.

Remember that Southwest is a very wealthy corporation. Unlike ALL of the remaining significant carriers in the country, Southwest has never washed their debt via federal bankruptcy court. Southwest has lots of cash in the bank & their debt-ratio is low.

hazelrah

You have a special insight into Saudi geo-political considerations? No? Well neither does Southwest nor any other U.S. airline.

steved5480

Ummmm.... your point?

Michael El

.....and usually occurs around election time. Watch the increase on November 5th.

flyer4512

Gas was $2.89 here Saturday and $3.09 Wednesday

steved5480

$2.76 here on the "MO side" @ 8am Thurs....$2.98 at 615pm

Same high/low swing on the "KS side", although prices 6 cents more on both ends.

traveller001

On my way into work yesterday I heard US airlines across the board have hiked fares by an average of $4. Fourth such increase for this year.

I doubt this is anything new, with demand high build cash reserves to cover any fuel price changes? It actually makes some sense since fuel is in a free fall but fare demand isn't.

InkUnderNails

The question is not the price of gas in KC, although the swings are always interesting. We get them here. It was $2.84 Wednesday, $3.19 Thursday morning and $3.09 last night.

The long term futures are showing $80 for a barrel of Light Sweet through 2017. The long term chart is here. While $80 is well below the peak, it is quite a bit higher than the historical average.

WN bought their hedges for 70% of their needs in 2007 when oil was at about $50. In the financial crisis of 2008 it zoomed to nearly $150 finally settling at around $90+/-. (Citation) So they bought at nearly 50% off the future price. Even the 2007 hedge was an accidental success. It is hard to get lucky twice.

So it was a trick question. To speculate 70% of supplies now would only achieve the same success if oil goes well north of $120. That is not seen as even a remote possibility unless there is a major catastrophe or massive unrest in the oil producing regions. Supplies are high and demand remains low. The price has a lot of down side. The major mitigating factor is that the newer sources of crude have high extraction costs and need $90 oil for profitability. Much lower than $80, production slows down.

lougord99

You have a greater faith in the ability of politicians to accomplish something than I do.