Invalid Excuses for Poor Business Results - Rising costs

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, [email protected]. MaxImpact is on the web at http://www.getmaximpact.com

In The News:

Opinion: How to simplify your strategic plan  Springfield Business Journal
Town Board discusses 2021 Strategic Plan  Estes Park Trail-Gazette
Sail Canada Stakeholder Survey  Scuttlebutt Sailing News
Health Director  ReliefWeb

The Chief Cause of Business Failure & Success

Business rises and falls on leadership. According to business guru,... Read More

Getting Started with Succession Planning: Part I

GETTING STARTED WITH SUCCESSION PLANNING: PART IA survey of 4,300... Read More

Buying Used Detailing Equipment and Rainy Day Services

Mobile auto detailing equipment becomes very inexpensive around March each... Read More

How Copying the HBO Schedule Can Boost Your Business

I'm not talking about posting the HBO schedule on your... Read More

Vision Getting Dim?

A recent conversation started with a typical question, "How's business?"... Read More

Financing Business Expansion for Your Small Company

How you finance the expansion of your business is important.... Read More

Call in the SWOT Team: Produce More Opportunities to Expand Your Business

Have you ever done a SWOT analysis? No, it's not... Read More

Business Strategy Planning Made Easy

Ask Yourself three simple questions that affect your strategy planning...... Read More

Dayton, OH; Why your Company needs to expand there

In Ohio: besides the 3-Cs you should look at Akron,... Read More

Writing Your Business Plan is Actually Storytelling

Storytelling and writing a business plan actually go hand in... Read More

Why Create an Annual Plan?

Can you imagine going on a road trip without knowing... Read More

25 Ways To Find Companies To Buy

When you start your program to purchase your "ideal" company,... Read More

Business Plan: The Simplest Business Plan Ever

If you're a solo professional like I am, you know... Read More

City of Cortez and South Western Colorado Market Survey

We have been spending many hours surveying the market for... Read More

Break-Even Analysis

A significant advantage of some business ideas is that the... Read More

Strategic Planning Consulting

Strategic planning and consulting is the strategy roadmap to manage... Read More

8 Ways to Earn More Without Working Harder

Conventional wisdom has it that there are only three ways... Read More

Planning For The Slow Season Of Your Business To Increase Sales

Every business experiences slower periods. For some, they sell more... Read More

Corporate Venturing For Emerging Growth Companies

The boom of the dot-com era in 1999 brought the... Read More

Mastermind Your Way to Success

What do Mark Victor Hansen, Robert Allen, Anthony Robbins, Andrew... Read More

Regroup - How To Do It And Why It Works

Regroup?is this a new management trend? Not a chance! Regroup... Read More

Turning On The Lights

Fun From The StartFor those with the will to start... Read More

Invalid Excuses for Poor Business Results - The Economy

Note to Rite Aid and CVS: It's not about the... Read More

Strategic Acquisition Strategies for Small Businesses

Growth through acquisition should not be considered an option reserved... Read More

Secrets Of Effective Brainstorming

Have you been in a "brainstorming" session where each person... Read More