Delta Air Lines is buying its own refinery

John Dimsdale May 1, 2012
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Delta Air Lines is buying its own refinery

John Dimsdale May 1, 2012
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Kai Ryssdal: With crude oil at more than $100 a barrel, jet fuel has become the biggest expense most airlines have. And one of ’em’s had just about enough of the price spikes and supply disruptions.

Delta has decided to decided to buy its own refinery. Whether an airline can run a refinery…?

Here’s John Dimsdale.


John Dimsdale: Delta makes a compelling case. For about $250 million to buy and fix up an aging refinery outside Philadelphia, Delta figures it can save more than that every year, by making most of its own fuel.

David Fuscus:  It has the potential to be a real game-changer.

David Fuscus is an airline consultant with Xenophon Strategies. 

Fuscus: Jet fuel costs about 30 percent more now than a barrel of oil costs. So if they can bring that price down on it, it’ll work for them very well.

Right now, most airlines hedge the cost of fuel, buying supplies for the future, essentially betting on the direction of prices.  That’s akin to gambling, says Matthew Jacob with ITG Investment Research. Refining your own jet fuel, he says, is potentially a better way to hedge.

Matthew Jacob:  This is a very interesting test case because if this works out it could be quite a home run for them and I wouldn’t be surprised to see other airlines looking into doing something similar.

But to pull it off, he says, Delta will have to quickly learn the complicated business of refining and selling fossil fuels. That’s why no airline has tried this particular form of hedging jet fuel prices before.

In Washington, I’m John Dimsdale for Marketplace.

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