Might Southwest's much touted hedging strategies eventually backfire on the low cost giant? Last week, Supply Chain Digest ran a great short blurb on how energy hedging strategies are beginning to backfire for some organizations. According to the article, "Southwest Airlines, for example, which looked so smart and maintained profitability when other airlines we bleeding red ink due in part to its earlier hedging strategies, recently booked a $173 million loss due to hedged positions as energy prices have tumbled."
Personally, I believe that companies should look at hedging as part of a portfolio of risk management strategies. And most important, hedging must be looked at over the long-term. Just as you should never judge the performance of a sourcing manager based on the results of a single negotiation, you should not look at a single write-off from hedging as the basis with which to dismiss the tactic entirely. And remember, hedging is primarily designed to minimize downside commodity risk -- not upside gain.