![]() The Company’s timing proved to be serendipitous, roughly coinciding with a deepening financial market meltdown across Asia and Russia. This, Southwest surmised, might provide it with the ability to grow during an economic correction when rivals would certainly falter. If anything, it felt that the smart play was to lock in extended price stability rather than blindly follow the trends of the hour. Having championed one-of-a-kind thinking since its inception, Southwest felt no pressure to follow the pack. It didn’t matter that Southwest competitors were leveraging themselves to the hilt in hopes of cashing in on the dot-com boom. ![]() Quarter after quarter, over the next four years, the hedges performed so efficiently that Southwest created a more sophisticated in-house fuel management program in 1998. Southwest took a different tack, locking in a modest 20 to 30 percent of its anticipated fuel needs just three to six months in advance. And others likely couldn’t afford to buy hedges at worthwhile prices due to poor credit or weak balance sheets. By 1994, some carriers didn’t view taking out insurance against an unexpected price surge as a priority, especially when capital could be used for other needs, such as new tech, more airplanes, and TV ads. Jet fuel hedges in the mid-1990s were as outdated as bell-bottom pants and platform shoes, which had been all the rage in the late 1970s-the last time hedging fuel prices really paid off.īut Southwest appreciated their value, as fuel hedges allowed the Company to buy a portion of its jet fuel at predetermined prices, creating massive savings should prices rise.Ī keen student of history, Southwest had refused to downplay the sudden rise in fuel prices that rocked the industry during the Gulf War in 1990.Although fuel prices dipped when the conflict ended, Southwest felt a spike could occur at any time. Knowing that jet fuel was one of the Company’s largest annual expenses, he reached out to Houston commodities consultant Barry Siler, seeking advice on how to launch a jet-fuel-hedging program. Since joining Southwest in 1986, Gary had excelled at proposing inventive cost-saving measures, including the adoption of the first electronic ticketing system by any major airline. Fuel is one of the largest and most unpredictable expenses for airlines. ![]()
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