But Most Will Still Save Cash Despite Losses

Attempts to use hedges to control costs have put airline executives in the odd situation of having to explain to stockholders why a stunning decline in oil prices has produced millions in losses.

Reuters reports some airlines have hedges which will result in paying above-market prices for their fuel.

For years, Southwest Airlines has been admired for using fuel hedges to create a major cost advantage over rivals. But in the latest quarter, the airline wrote down 247-million dollars in accounting losses when dropping fuel prices made the hedges less valuable. Industry-wide, losses due to hedges totalled over 2-billion dollars.

Still, industry observers say you'd really have to be a glass-half-empty type to cry over hedging losses. The money which will be saved by the airlines through the lower fuel costs is expected to dwarf the accounting losses.

Consultant Robert Mann notes, "If you had the choice, you'd take the noncash charge. Obviously, the lower fuel prices are a big plus."

Despite a rare losing quarter blamed on hedges, Southwest CEO Gary Kelly says hedges will continue to play a role at his company. "Right now... prices have no bottom... we can't be oblivious to that," he said. "At some point, we'll want to adjust our strategy and continue to be adequately hedged into the future."

Those sentiments were echoed by United Airlines CEO Glenn Tilton.

"While oil prices are lower in recent weeks, they continue to be volatile," Tilton told employees last week. "That said, the convergence of falling oil prices with our capacity flexibility, strong improvement on costs and competitive revenue put us in a position to make our margin and return United to profitability."

FMI: www.southwest.com, www.united.com