Delta comes up with novel way to fight fuel costs
With a fuel bill of $300 million a year, it should come as no surprise that Delta Air lines decided to do something about it: they bought a Phillips refinery in Trainer, Pa. But it raises another interesting question: will others follow?
The cost was $150 million.
It’s generally viewed as a "novel step that will save millions of dollar off its biggest expense: fuel."
"Acquiring the Trainer refinery is an innovative approach to managing our largest expense," Richard Anderson, Delta’s CEO, said in a statement.
It’s the first time that an airline has taken such a bold step to control escalating fuel costs. But it doesn’t come without risks, said newspaper reports. Fuel refining is volatile and expensive business.
"If this works, you’re going to see everybody doing it," Ray Neidl, an airline analyst, told the Jakarta Post.
Delta can’t just buy the refinery and pump out nothing but jet fuel. Refining crude oil yields different products—including diesel fuel, gasoline, and jet fuel—at different points in the process.
This business is not without risk," said Ben Brockwell, pricing director at the Oil Price Information Service. "But they thought this is a risk they’re willing to take."
Delta’s Anderson compared the modest investment to the cost of a new wide-body jet.
Fuel makes up between 25% and 40% of an airline’s costs. "Soaring prices in the past several months have dug into industry profits and led to higher fares for the flying public," said USA Today.
The Pennsylvania refinery’s output will fulfill 80% of Delta’s fuel needs in the US, the airline said.
The purchase of the refinery should be completed by June, it said, with production starting in the following three months.
By David Wilkening
David
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