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Delta buying oil refinery to help reduce costs

Marketplace Contributor May 1, 2012

Jeremy Hobson: Well we’ve all had enough of high fuel prices, and Delta Air Lines is doing something about it.

It’s buying its own refinery, as Marketplace’s Heidi Moore reports.

Heidi Moore: Delta is the first airline to try its hand at refining oil. There’s a reason for that.

Juli Niemann: It’s just astonishing to think that they have the capability to run an oil refinery when the world’s largest oil companies are having a tough time with it.

That’s Juli Niemann, an oil and gas analyst for Smith, Moore & Company.

Airlines try a lot of things to protect themselves against fuel prices, including striking deals with Wall Street to speculate on the future price of crude oil. But hedging is a risky strategy and they could lose money as easily as they make it.

Richard Aboulafia is an analyst with Teal Group.

Richard Aboulafia: Having some control of the refined product gives you some degree of stability on prices, which is certainly welcome given this volatile fuel environment.

But even if Delta’s $150 million investment works out well, travelers won’t see the difference.

Aboulafia: I don’t think there’s going to be any trickle-down impact to consumers, not enough to show up in ticket prices — they’re going to charge whatever the market can bear.

As usual, airlines will keep those cost savings to themselves.

In New York, I’m Heidi Moore for Marketplace.

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