The best stimulus package in the world right now is being run not by the federal government, but by Southwest Airlines
Earlier today, the carrier defied peers by reporting a 22% improvement in per-share net income during the second quarter. Trouble is, virtually all of that growth was artificial: About $200 million of Southwest's $321 million in Q2 earnings derive from fuel hedging contracts.
The result? While United parent UAL
Southwest's core business is in a bit of a holding pattern. The average Q2 passenger fare improved 8%, for example, while load factor fell 900 basis points over the same period. If there's a significant problem with Southwest, it's that, according to today’s release, fuel hedging won't provide the same cushion in future years:
...We currently have derivative contracts for approximately 80 percent of our estimated fuel consumption for the fourth quarter 2008 at an average crude-equivalent price of approximately $58 per barrel; approximately 70 percent in 2009 at an average crude-equivalent price of $66 per barrel; approximately 40 percent in 2010 at an average crude-equivalent price of approximately $81 per barrel; and over 20 percent in 2011 and 2012 at an average crude-equivalent price of approximately $77 and $76 per barrel, respectively.
Someday, Southwest might be like troubled peers Delta
Taxi toward related Foolishness:
Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. He hunts for tech's best as a member of the Motley Fool Rule Breakers team. Get a daily dose of his Foolish musings via this feed for your RSS reader.
The Motley Fool's disclosure policy asks that set your seat backs and tray tables upright for take-off.