But Fuel Hedges Can Only Last So Long
Wednesday was a day for Southwest Airlines executives, managers,
shareholders and employees to reflect back on the 38-year career of
founder Herb Kelleher. Fortunately -- for Southwest, at least --
there was little in the way of bad news to ruin the party, even as
cross-town rival American Airlines gave all indications it may be
one grounded MD-80 away from the brink.
The Fort Worth Star-Telegram reports incoming chairman Gary
Kelly (above), in his state-of-the-airline address at the airline's
annual meeting in Dallas, said that while marginal flights will be
trimmed, "We have no plans at present to close any operations at
any of the cities we serve."
Kelly also told shareholders that Southwest's run of 68
consecutive, profitable quarters will not end anytime soon.
The contrast to American could not have been more stark. As ANN reported, American
announced at its annual meeting in Fort Worth it plans to cut 12
percent of its flight capacity, thousands of employees will be
furloughed, and passengers will be charged an extra fee for every
checked bag, even the first one, starting June 15.
The airline also plans
to charge customers added fees for such previously-complimentary
items as placing reservations over the phone. In other words, the
airline wants customers to pay for the privilege of paying for a
flight... but American says all these measures are necessary,
to combat high fuel prices.
Likely with a touch of envy, Kelleher's name even came up at
American's meeting -- where AMR Corp. CEO Gerard Arpey recalled the
battle over turning back legal restrictions in the federal Wright
Amendment, which limits Southwest's growth at Dallas Love
Field.
"When I crossed swords with him, I felt like I was in a gunfight
and all I had was a knife," Arpey said. "I'm proud to call him a
friend, and I wish him the very best."
In addition to a workforce culture renowned throughout the
corporate community as a model for management-worker relations,
Southwest has an important advantage in the current market other
airlines are lacking: the carrier's policy of purchasing a sizable
amount of its fuel years in advance at pre-determined prices, a
practice called "hedging."
That's a big gamble... as there's no guarantee the price an
airline agrees to pay now, won't be significantly higher than the
actual market rate when the time comes for that price to go into
effect. Like all big gambles, however, there's also the potential
for a big payoff -- as is the case for Southwest. With oil trading
now well north of $130 per barrel, Southwest will only pay the equivalent of about $51 per
barrel through 2009.
After that, however, it's anyone guess what the market will look
like... meaning even Southwest should probably enjoy the "good"
times while they last.
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