Southwest’s hedging strategy worked very nicely when oil’s rise was continuing, but now oil is now trading near $40. Last week, Southwest made a filing with the SEC describing how it is adjusting to the drop in oil prices.
Southwest has significantly reduced the amount of its hedges, and they only make up about 10% of the airline’s needs from 2009 to 2013. After making these changes, Southwest “estimates its 2009 economic fuel costs per gallon, excluding fuel taxes, to be around $1.80.” The filing also states that this lower price will save the company approximately $1.4 billion, based on its previous price estimates for fuel. For the sake of comparison, Delta has estimated its 2009 fuel price at $2.19/gallon (I don’t know if that number includes taxes or not).
Southwest is also making some moves to generate some cash. First, the airline is doing a sale-leaseback of ten 737-700s. The first five were sold for $175 million on December 23, and the next five will be sold during the first quarter. In addition, the airline is selling $400 million worth of notes (paying 10.5%) that will be due in 2011.
Iahphx on FlyerTalk found a good article from the Dallas Morning News on the filing, and there was a very interesting bit in there:
Southwest said its cash balance on Monday was $1.3 billion, compared with $2.4 billion in cash and cash equivalents on Sept. 30 and more than $4.6 billion on June 30. Including short-term investments, Southwest’s Sept. 30 balance was over $3.4 billion and the June 30 balance was more than $5.8 billion.
I am looking forward to hearing more about these moves during Southwest’s quarterly conference call on January 22.
0 Responses to “Southwest Works on Its Hedges”
Leave a Reply