Dan and Jared:
Thanks for the clarification on Southwest’s inclusion in the letter. It’s sad that they are willing to stand up for public hypocrisy, just to stick with the team — especially since that team is their competition! Jared’s point that they’re hedgers themselves, but running out of bullets, is probably the real explanation, at the end of the day.

ML Harris:
I appreciate your detailed reply, but I think your point-by-point discussion of factors affecting the state of the economy actually missed a fundamental critique in my post: I wasn’t listing those issues as directly affecting the price of oil, but as affecting the nation’s economy writ large. In doing so, I was responding to the letter. The airline CEOs blamed oil for our economic woes in a simple A –> B fashion (”Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices…”) which is amazingly simplistic.

And by “derivatives,” I should perhaps have been more specific and blamed CDOs, SIVs, credit default swaps, and now, the latest repacking of financial toxic waste, ReREMICs, rather than lumping in any and all derivatives.

You’re right that UA or any of these other airlines can’t affect the state of war, central bankers, or the debt loads of consumers. But this quixotic battle against markets is just as misguided. Better to say nothing.

That said, I agree that the current crunch will (hopefully) create a shakeout of bad business models in the industry. But efforts to blame markets or beg for government bailouts will only delay the inevitable and will prolong the pain.

Mortgages and foreclosures: Nope, nothing I can do to fix people’s moronic purchase of homes they couldn’t afford, or speculation in that market (which clearly had/has an impact). I’m an airline. While it impacts credit markets, it doesn’t do anything but probably make my bonds a more attractive investment (we’re a little more stable than your average REIT right now).

Trade Deficits: A bigger red herring than even oil speculation. Really.

Currency devaluation: Hrm. Central bankers, ForEx wizards, speculation (which can have an impact in that market… ask Thailand, and England), and stupid foreign and monetary policy. Nope, no help there. (FWIW, I think Currency Deval is a big problem and it will get better with domestic regime change, even if it’s Mr. McCain in charge… either one will have a monetary policy more friendly to the dollar than Mr. Bush)

Consumer Debt: “Hey, Customer. Don’t fly. Save some money. So you can fly more later. Assuming we’re still in business.”

Derivatives markets: and this is completely separate from oil speculation how? It isn’t. Not really. The speculation you are describing is derivative trading. Oil futures are derivatives. Yes.

At any rate, it’s always easy to kill management (something I learned in my MBA courses while I was awake). It’s never easy to be management. They don’t have options to talk about any of the things that are really hurting the economy or driving up oil prices, so they talk to the 2% or so they can. Will it work… no. But are there other things for them to do on this specific piece of the business? No, again.

They should fix their business models. This current crunch should force them to. It was bound to happen sooner or later, so it may as well happen now.

Don’t think of it as dead loss. Think of it as creative destruction.

One reason Southwest may have signed the letter: although they had 70% of their fuel needs hedged in 2008, that will shrink to only 15% of their needs in 2013.

As another blog pointed out (can’t remember which one), airlines were going bankrupt with $10 oil – scapegoating is as old as the Wright Brothers (Damn you, yields from Kitty Hawk to 400 yards down the road in Kitty Hawk)

The futures market is a zero sum game with the physical commodity delivered if not cashed out by an opposing contract. That means every time someone buys (pushing the price up), they must be prepared to deliver or sell (pushing the price down) come delivery date.

If the airline logic was true, they should be getting into speculation themselves – those supposedly always rising contract prices have fixed delivery dates so all the airline execs would need to do would be to short oil and make a killing come contract expiry. They don’t because their argument is BS.

“We mainly signed the letter as a show of support to the industry and to raise awareness for our customers,” a Southwest spokesman tells CNN/Money.