Airline Taking A Pounding On Fuel Hedges

Southwest Airlines CEO Gary Kelly says his airline saw a "bang-up month, almost unexplainably strong," in October of this year... but November volume turned down sharply after the stock market collapse.

Southwest, which is based in Dallas, officially reported passenger volume down 10.7 percent in November compared to a year earlier, with an average load factor of just 63.2 percent, down 6.1 from last year.

The Associated Press reports Kelly was addressing investors at a Credit Suisse conference in New York, and said that he doesn't expect December to reflect another sharp decline from last year.

Kelly added that capacity cuts next year will not be as large as the airline had first anticipated. Southwest's new schedule will be released in January, and reflect capacity down 4-to-5 percent, not the 5-to-6 percent earlier estimated.

He added Southwest still plans to take delivery of 13 new Boeing 737s schedule for delivery in 2009, although he admits capacity cuts will leave the airline with the need to "manage" 10 excess planes as a result.

Southwest also reports it's trying to extricate itself from its fuel hedges. The advance fuel contracts have been credited with saving the airline $4.2 billion to date... but can be a liability when fuel prices drop.

Southwest says it has hedged 63 percent of its 2009 fuel needs. What the airline left unsaid was, those hedges only work if the price of fuel once again skyrockets.

FMI: www.southwest.com