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Abstract

Southwest Airlines Company is a US-based low cost airline with the largest and most profitable operations. Until January 2008, it had posted profits for 35 consecutive years. It had been a strong advocate of the financial strategy of fuel hedging to contain its fuel costs and maintain profit margins. Fluctuating fuel prices had always been beneficial to Southwest Airlines. But now with the fall in fuel prices the situation has changed radically. As of 1 December 2008, the price of Jet fuel has declined 8.5% from the last week of November 2008 to the equivalent of USD1.71 a gallon and that was 38.7% down from the previous year 2007. The dark side of fuel hedges had cropped up for Southwest Airlines and it had a setback in its continuous string of profits and made a loss of USD120 million in the third quarter of 2008. The case analyses and evaluates whether fuel hedging is a critical tool for the aviation industry.
Location:
Industry:
Other setting(s):
2008

About

Abstract

Southwest Airlines Company is a US-based low cost airline with the largest and most profitable operations. Until January 2008, it had posted profits for 35 consecutive years. It had been a strong advocate of the financial strategy of fuel hedging to contain its fuel costs and maintain profit margins. Fluctuating fuel prices had always been beneficial to Southwest Airlines. But now with the fall in fuel prices the situation has changed radically. As of 1 December 2008, the price of Jet fuel has declined 8.5% from the last week of November 2008 to the equivalent of USD1.71 a gallon and that was 38.7% down from the previous year 2007. The dark side of fuel hedges had cropped up for Southwest Airlines and it had a setback in its continuous string of profits and made a loss of USD120 million in the third quarter of 2008. The case analyses and evaluates whether fuel hedging is a critical tool for the aviation industry.

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Location:
Industry:
Other setting(s):
2008

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