Even at Southwest Airlines a loss is still a loss

Southwest 737 thumb.jpg

And so it has come to this: the first quarterly loss at Southwest for 17 years. It’s that famed fuel-hedging programme they have and that everyone envies that has now caused the problem. Without the $247 million loss from that they’d be trading comfortably in the black.

Two points arise:

1.  A lesson to all that hedging is about buying yourself certainty, not about saving money. Knowing what you’re going to pay for fuel in future and planning accordingly has become a valuable management tool in its own right. Arguably a vital tool.

If you do in fact save money that’s great of course. But it’s secondary.

2.  Southwest is giving clear indications that it will resume normal service in the next quarter, and in other times it could have smeared the hedging ‘loss’ over a long enough accounting period to retain its pristine record. But today’s rules demanding mark-to-market accounting mean that’s not an option.

All of  a sudden it is fashionable to argue for scrapping those rules. And in fact the regulators in the US and Europe are seriously considering it in at least some contexts. I think we should be careful what we wish for.

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One Response to Even at Southwest Airlines a loss is still a loss

  1. bankelele October 17, 2008 at 7:13 am #

    Shame after such a glorious run, but I’m sure they will rebound strongly next year.

    Our local Kenya Airways told shareholders that their fuel costs are hedged 45% to December 2008 and another 25% to March 09 – so I wonder how teh halvign of oil prices in a month will affect them!

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