Word: southwest
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Dates: during 2000-2009
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...takeoffs and landings required by shorter routes. As part of its fleet of 49 747s, the largest of any carrier in the world, JAL operated ten of the short-range types, which can accommodate more seats. The flight to Osaka (pop. 2,625,000), a commercial center 250 miles southwest of Tokyo, was sold...
...years ago, before the Iraq war, even before 9/11, Southwest's analysts looked at fuel prices and saw all arrows pointing north. Guided by then chief financial officer Gary Kelly, the airline assembled a strategy to gird against potentially calamitous surges in oil prices. Two full-time oil specialists at Southwest's Dallas headquarters spent most of their time just watching oil markets and crunching numbers. By the time financial disaster struck the industry, Southwest had signed contracts guaranteeing the airline a certain price for fuel in the future, no matter how high the market climbs...
...coincidence that Kelly is now Southwest's CEO. While oil prices are currently bobbing around $55 per bbl., this year Southwest is paying just $26 per bbl. for 85% of its oil, thanks to the aggressive hedging strategy he put in place several years ago. The industry overall lost about $4 billion as a result of higher oil prices last year; in contrast, Southwest's hedging reduced its energy costs by $455 million, helping bump its 2004 earnings to $313 million. According to Vaughn Cordle of Airline Forecasts, oil would have to shoot past an average...
...most successful airlines are likely to run into difficulties on the hedging front soon. With oil prices so high for so long, no investment bank is willing to cover $26 barrels of oil for anyone, no matter how much cash the airlines can put up front. That's why Southwest's fuel savings will decrease with time. In 2009, for example, the airline will be able to buy just a quarter of its fuel at $35 per bbl. No partner is willing to cover hedges that low now that oil has passed $50 per bbl. "We're willing to write...
Alaska Airlines, with $800 million in cash, is second to Southwest in benefiting from hedging, according to industry analyst Cordle. The low-cost carrier, which largely serves the West Coast, has netted more than $100 million in savings from its smart hedging positions since 2002. This year the airline will buy half its fuel at $30 per bbl. But like Southwest's, that spread will diminish by the end of the decade. By then, all airlines will have to face the reality that their core business--not their fancy financial instruments--can be the only guarantor of success. JetBlue...