Thu, Jul 20, 2006
Hedging Pays... But For How Much Longer?
Executives at Dallas-based Southwest Airlines executives are
seeing dollar signs, as the airline says its second-quarter profits
more than doubled despite rising jet fuel costs.
Southwest says it second-quarter success is thanks in part to
higher fares and aggressive fuel hedging. In fact...
Southwest’s fuel hedging program reportedly generated a cash
benefit of $225 million over the past three months.
That kind of hedging against fuel cost increases is credited
with helping the airline maintain its low fares despite the
constantly rising price of Jet-A.
But the party has to end sometime... even for Southwest. Some of
its hedging contracts have expired, and as the airline faces higher
fuel costs, it has been forced to bump airfares even higher.
Even with the higher prices, though, the Dallas-based carrier
says its net profit for the three months ending June 30 rose to
$333 million. That's compared to $144 million in the same period a
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