Southwest Airlines (LUV)) Message Board

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Non-Tech : Southwest Airlines (LUV))

LUV 32.46

+3.0%

Nov 7 9:30 AM EST

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To: Bryan Arnold who wrote (111)	1/15/1997 5:25:00 PM
From: Sam Citron	of 299

Bryan, I had a long discussion with Tammy today in Investor Relations and here's the deal on hedging. She tells me they currently hedge up to about 30% of their fuel requirements, though right now she thinks they are about 20%. She thinks this is fairly standard in the industry and that Continental is the only airline she knows of who is doing more hedging. She says they have been hedging for about 10 years. When I asked why not hedge at 100% (I'm tired of hearing the old excuse that earnings were penalized by higher fuel costs), she said that that would hurt the company if prices declined and they have a smart guy in charge of buying jet fuel. I told her the company would be better served if they eliminated the job of trying to outguess the jet fuel market. Just like General Mills is not trying to outguess the wheat market. It just buys the futures ahead of its physical needs because they are in the cereal business, not the commodity business. I explained that I expected LUV to lead the industry in risk management and not to play follow the leader. I told her that their pussy footing with 30% hedge suggested to me that they were still unsure of themselves and I suggested that they get the systems in place and study what the results would have been had they hedged at 0% and at 100%. I don't see why 100% shouldn't be the norm unless they know something that I don't know, and that is that energy prices are going into the toilet. I told her I was maybe willing to speculate on LUV, but that if I wanted to speculate on NRG futures I would do so on the commodity markets directly. Told her I would be satisfied with one rational reason why they don't hedge at 100%. She said she would try to have someone get back to me. I'll let you know what I find out. Sam (P.S. where is everybody else, have they jumped ship?)

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