Airlines try hedging to beat soaring jet fuel costs

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Southwest Air is industries best at saving firm billions.

By watching and playing against the futures market Southwest Airlines are able to keep their costs of fuel down to $1.98 per gallon. Hedging is the way that airlines and other investors protect themselves from the rising costs of commodities and oil prices.

Some say it’s gambling all the way to buying insurance. Now I do suppose it pays to try to beat the market but they have also been burned. It’s my gut feeling that investing in these types of activities is good to keep the cash flow in the business running. However I also know that betting against the odds doesn’t always pay off.

Large, mid and small sized companies need to build long term protection from rising operating costs. With the onset of high fuel prices, food and inflation costs higher more stable forms of prot3ection must be sought out.

Land banking would be a great long term hedge for protection and the airlines would benefit in a number of ways. Reduced market exposure so reduced risk. Diversification to protect from weakening financial sectors and offset losses.

The building of solid relationships that make the employee want to develop a long term loyalty program. Secure more stable financial positions and long term borrowing capability from the equitable growth. Therefor providing lower operating costs and debt service costs.

Here is the way Southwest Airlines is protecting their position by hedging now. Then after you read the article view from my point of view. Then ask your self does your current financial plan have separate baskets and security hedges built in?

If an airline can benefit from hedging how can you? Here are some simple tips… First don’t take gambles with your money stocks are risky business and over the long term don’t provide the best returns for consistent average performance.

By adding carefully selected real estate for long term capital growth and appreciation you can rest assured that your nest egg will be performing at it’s optimal capability. I’m not knocking stocks and the financial services industry they have a purpose. I use them for more of a short term build liquidity accounts for access to immediate cash.

Real estate is not a liquid asset and takes weeks to months to move from seller to buyer. The balance of liquidity and equity should be structured in the best mixture to provide you with growth & velocity for your capital. Tax advantaged to provide you with the most benefit to keep the lions share.

Separate objectives should be given to pools or sectors of capital to cover all financial obligations from monthly debt obligations, extra-curricular activities, necessity items, miscellaneous transactions. You should never have to buy on terms unless you need to leverage your cash flow for investment purposes.

Ready for takeoff yet? http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/07/06/BU0L11HTLC.DTL&hw=Airlines+try+hedging+to+beat+soaring+jet+fuel+costs&sn=001&sc=1000

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Tagged with: airlines • fuel • futures market • hedging • inflation • land banking • Ryan Wegman

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