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.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.