Note to Northwest Airlines ? It's not about fuel costs
For the first quarter of 2005, Northwest Airlines posted a loss of $458 million. The main reason cited was high fuel costs.
Northwest complained that fuel prices surged to $630 million from $450 million for the same time period last year. Let's start by looking at some numbers. During the first quarter of 2004, Northwest lost $230 million. This means the increase in red ink was $118 million while fuel expenses increased $180 million. Obviously, with fuel expenses higher than the change in red ink, one could make an argument that higher crude is responsible. This argument does not hold up to scrutiny when you consider the entire cost of fuel was only $172 greater than the loss. Also Northwest has stated a penny fuel increase equates to $1.6 million in operating costs. A $458 million loss attributable to increased jet fuel cost would need to cost $2.86/gallon using Northwest calculations. At the end of the first quarter, jet fuel averaged $1.27 cents.
Okay, too many numbers, let's look at it a different way. Based on Northwest's total fuel bill, if fuel was the reason for the loss, the only way they could have turned a profit would have been to run their planes with only 25% of the fuel actually used. Although this would be a quick fix and return the airlines on paper, if their argument is correct, it would have had a dire effect on reaching each flight's intended destinations.
If this isn't convincing enough that Northwest's blame of fuel costs is invalid, consider Southwest Airlines. The first quarter of 2005 was the airlines 56th consecutive quarter of earnings ? earning $76 million dollars. Southwest, which has been able to compile a winning streak of 32 straight years of profits did not need to make excuses for their earning, despite fueling their planes sufficiently to reach their destinations. However, Southwest did comment on rising fuel prices when they released their earnings statement. Their comment, "While we are not immune to the challenging industry revenue environment and glut of capacity, we are well positioned for growth and will continue to explore long-term profitable market opportunities."
Blaming operational costs, including price increases from suppliers, is common among businesses. Entrepreneurs and Fortune 500 companies fall pray to this invalid excuse. Successful business professionals see increased costs in advance, and prepare for them. For example, Southwest Airlines has hedged their fuel expenses through 2009 in anticipation of higher prices. They said, "Excluding fuel, our unit costs declined 3.8 percent. This superb performance reflected a tremendous effort by our Employees, and they continue to work hard to improve productivity throughout our Company."
To create consistent earning, Southwest Airlines offsets the volatile fuel prices by buying crude oil derivative contracts to limit their risk to sharp changes in jet fuel costs. This practice makes it easier to budget for fuel. Although there is not a jet-fuel derivatives market, airlines can hedge indirectly by dealing in closely related oil futures, then use the proceeds to offset the higher fuel costs.
Rather than making excuses for higher costs, look at ways to offset those higher expenses through a team attack on budget waste. If possible, prepay or set aside money to counteract those costs when they do go up. Predictable increases should be written into proposals as early as possible.
Proper planning puts you on the path of max impact, where your business will flourish despite erratic business expenses.
Rick Weaver is President of Max Impact, a national leadership and organization development company based in Rochester Hills, Michigan. Rick is an accomplished business executive with experience in retail, market analysis, supply chain and project management, team building, and process improvement. He has worked with hundreds of companies to improve sales, processes, and bottom-line results. MaxImpact offers leadership and organizational development services along with employee assessments and background checks. Contact Rick at 248-802-6138 or via email, rick@getmaximpact.com. MaxImpact is on the web at http://www.getmaximpact.com
Much of what we heard in the mass media about... Read More
Whether you are seeking capital for your company or are... Read More
A significant advantage of some business ideas is that the... Read More
Writing a business plan is no easy task, sure you... Read More
Want to become more strategic? Add these traits to your... Read More
In today's rapidly changing and highly competitive markets, many privately... Read More
As a business owner, you've likely created a hurricane plan... Read More
Businesses tend to avoid doing their annual business plan thinking... Read More
No "meme" isn't a typo and Got Milk, the more... Read More
Why cut costs now? Efforts are multiplying to cut costs... Read More
These may sound like no brainers, but you'd be surprised.... Read More
I'm not talking about posting the HBO schedule on your... Read More
Running a business, whether it be an offline multi-billion dollar... Read More
How important is a vision statement to your company or... Read More
Anyone who has been watching the Idaho Market Carefully for... Read More
The first step in starting a restaurant is proper planning.... Read More
Human beings are rational agents. Rationality endorses one to take... Read More
Business plan financial projections seem daunting because they are so... Read More
I am surprised how few sales professionals, independent consultants, and... Read More
Conventional wisdom has it that there are only three ways... Read More
Please take a moment before you read any further and... Read More
Canada's lean leaders need to look beyond the horizon and... Read More
"Most great plans aren't. They are just nice, high-level ideas."That's... Read More
It is always said "If you Fail to Plan, you... Read More
Many very successful business owners may never have had a... Read More
One of the most powerful driving forces in human nature... Read More
Note to Rite Aid and CVS: It's not about the... Read More
Regroup?is this a new management trend? Not a chance! Regroup... Read More
Cassy was an employee of a nonprofit who had been... Read More
As a franchisor it is imperative that you seek, find... Read More
Business rises and falls on leadership. According to business guru,... Read More
Writing a business plan can be tricky when all the... Read More
The day you decide to take the plunge and work... Read More
When you start your program to purchase your "ideal" company,... Read More
If you own a mobile car wash business or auto... Read More
If you are in the parking business and own or... Read More
Can you imagine going on a road trip without knowing... Read More
Conventional wisdom has it that there are only three ways... Read More
You might be thinking to yourself, "Why should I waste... Read More
Have you been in a "brainstorming" session where each person... Read More
Writing a business plan is no easy task, sure you... Read More
I'm not talking about posting the HBO schedule on your... Read More
A significant advantage of some business ideas is that the... Read More
Some analysts credit [Larry] Ellison with anticipating the consolidation in... Read More
I am not a big fisherman, but I do enjoy... Read More
American Eagle Outfitters and Wet Seal Stores have issued statements... Read More
David E. Gumpert, author of Burn Your Business Plan, often... Read More
There are no "rules of thumb" in the pursuit of... Read More
The new check cashing instant clearing will take some time... Read More
Most companies that are worthy of raising venture capital have... Read More
Q: A key investor in my business has suggested that... Read More
Succession planning requires the owner of a small or medium-sized... Read More
While writing an article recently on effective ways to bridge... Read More
One of the key challenges for any business is to... Read More
I read once that something like 30 percent of all... Read More
From time to time there seems to be a flurry... Read More
If you are a successful franchise of a large franchise... Read More
You have invested a lot of time and energy on... Read More
No matter what business you plan to start in your... Read More
GETTING STARTED WITH SUCCESSION PLANNING: PART IA survey of 4,300... Read More
Is there really anything as a problem? Does chaos or... Read More
Please take a moment before you read any further and... Read More
Ask a small business owner about their strategic plan and... Read More
Would you like to jumpstart your online or offline business... Read More
Franchised companies often require what some believe to be excessive... Read More
A well known, national chain of restaurants discovered that certain... Read More
Strategic Planning |