Delta restarting SEA to ANC and LAS

[Andy]

I already read it. I'm actually a big fan of Seeking Alpha; it is a great place to read a lot of different opinions on a subject - there are tons of people from financial professionals to average Joes that post articles there. That was one of the better written articles on the subject.

 

[jonjuan]

How Will Delta's Oil Refinery Help Its Business?
Mar 6 2013, 12:56 | by Trefis | about: DAL
Quick Take. Seeking Alpha

Delta suffered from a $63 million loss from the Trainer refinery operations in 2012.
But it anticipates that it will achieve $300 million in jet fuel savings through the refinery in 2013.
These savings compare to the $2.2 billion operating profit that the carrier reported in 2012. Thus, these savings will significantly increase Delta’s margins in 2013.
Delta Airlines (DAL) acquired the Trainer crude oil refining complex located near Philadelphia from Phillips 66 (PSX) in June 2012 for $180 million. The carrier had hoped to address rising refining margins through the acquisition, but the refinery produced a loss of $63 million in 2012. [1] This loss was caused by Superstorm Sandy which not only damaged Trainer’s supply pipeline infrastructure but also lowered its jet fuel production by impacting production start up.

Looking ahead, in the absence of any natural calamity, what will be the impact of the Trainer refinery on Delta’s profits?

In the first quarter of 2013, the refinery will likely provide some marginal upside to the carrier’s profits as the production of jet fuel at the refinery has continued to increase. For the full year 2013, the refinery will lower Delta’s fuel expenses by around $300 million. [2] To provide context, Delta’s operating income in 2012 was a little under $2.2 billion. Thus, fuel cost savings from Trainer refinery operations will significantly expand Delta’s margins in 2013. These savings will also nearly recover the $330 million that Delta has so far invested in the Trainer facility to bring it to production. [1]

We currently have a stock price estimate of $15.65 for Delta, approximately 5% above its current market price.

See our complete analysis of Delta here

Delta aims to address rising refining margins through Trainer refinery operations

Over the past few years, jet fuel refining margins have increased, exacerbating the negative impact of higher crude oil prices on airlines. Refining margin prices have risen to a high of $45 per barrel in May 2008 before declining to $10 per barrel in 2009 and $14 per barrel in 2010 due to the financial crisis. However, they rose again to $33 per barrel in 2011 and $36 per barrel in 2012. [3] Refining margins also increased as a percentage of total fuel expenses for airlines during this period. For instance, at Alaska Airlines, refining margins increased from 13% of total fuel costs in 2009 to 25% of total fuel costs in 2012. [3] Delta is trying to address these rising refining margins in jet fuel prices through the operation of its Trainer refinery.

Potential positive impact from Trainer refinery operations in 2013

This refinery can process up to 185,000 barrels of crude oil per day. In comparison, Delta consumed approximately 328,000 barrels of jet fuel per day in 2012. [1] Currently, the carrier expects to produce around 40,000 barrels of jet fuel per day from the Trainer refinery by the end of 2013. [2] The remaining production from the refinery consists of gasoline, diesel and other refined products, which the carrier exchanges for jet fuel from Phillips 66 and BP under multi-year exchange agreements. In all, in 2013, Delta expects to save at least $2.20 per barrel of jet fuel it consumes due to savings on refining margins from the refinery operations. [2]

Additional fuel cost savings can also be achieved if Delta can source crude oil for the Trainer refinery from the Bakken oil field in North Dakota. Currently, the carrier purchases crude oil for this refinery from BP. Delta now also has flexibility in timing its jet fuel purchases in a way that it incurs lower fuel prices. The Trainer refinery has also provided the carrier with greater leverage to purchase jet fuel from the market.

Notes:

Delta’s 2012 10-K, February 13 2013
Disclosure: No positions


Redflyer should also read this.....


Bye Bye---General Lee

Good thing you held out for a "major" 3% pay increase in 2014 (also in 2015, too). You must be so proud of your recent "yes" vote. You might as well buff the wax on your managements new Bentleys (on the way to pick your Mom up). While someone who was hired at SWA in 1998 (wasn't that you?) is making $60K/year more than you. Maybe your public school kids will someday work for Red's kids. That would be fantastic.

 

[bri5150]

Nice. We are on the third subject in this thread. It might be time to kill it.

 

[General Lee]

Good thing you held out for a "major" 3% pay increase in 2014 (also in 2015, too). You must be so proud of your recent "yes" vote. You might as well buff the wax on your managements new Bentleys (on the way to pick your Mom up). While someone who was hired at SWA in 1998 (wasn't that you?) is making $60K/year more than you. Maybe your public school kids will someday work for Red's kids. That would be fantastic.

Thanks Jonny. First of all, last year the DL pilots received an 8% raise (4% Jan 1st, 2012 and then another 4% July 1st from the new contract). Then, there was an additional 8.5% raise this Jan 1st. Soooooooooo, that's 16.5% from Jan 1st to Jan 1st. How you like dem apples boyeeeee! The 757/767 passes SWA 737s a year from this upcoming Jan, and the larger widebodies have already passed them. Throw in huge retirement numbers at DL compared to SWA, and Red and his kids may rent a room in my guest house. They might see you there mowing the lawn. Enjoy it Jonny! Get to work! Hahahaha. Mommmmm, the meatloaf!


Bye Bye---General Lee

 

[jonjuan]

Thanks Jonny. First of all, last year the DL pilots received an 8% raise (4% Jan 1st, 2012 and then another 4% July 1st from the new contract). Then, there was an additional 8.5% raise this Jan 1st. Soooooooooo, that's 16.5% from Jan 1st to Jan 1st. How you like dem apples boyeeeee! The 757/767 passes SWA 737s a year from this upcoming Jan, and the larger widebodies have already passed them. Throw in huge retirement numbers at DL compared to SWA, and Red and his kids may rent a room in my guest house. They might see you there mowing the lawn. Enjoy it Jonny! Get to work! Hahahaha. Mommmmm, the meatloaf!


Bye Bye---General Lee

Well it's a great thing then that many of the 757s are being replaced by, wait for it.....737s! What % of pilots will be able to hold a line on a 757 at delta versus a line on a 737 at SWA in 2015? Don't forget to take your lid off before you get in your Kia. You better believe I'll be "mowing the lawn" at your place while you're on a 9 day to Nigeria.

 

[General Lee]

Well it's a great thing then that many of the 757s are being replaced by, wait for it.....737s! What % of pilots will be able to hold a line on a 757 at delta versus a line on a 737 at SWA in 2015? Don't forget to take your lid off before you get in your Kia. You better believe I'll be "mowing the lawn" at your place while you're on a 9 day to Nigeria.

You OBVIOUSLY don't know that the 739 pays about $3-4 less per hour than the domestic 756, and the 100 new 739s are replacing a combo of 757s, 320s, and some older 767-300 domestic planes, one for one. The 30-40 A320s pay less than the 739 rates, so some of the replacements will pay MORE. Also, with huge retirements coming before all 100 739s arrive, most current pilots will actually go to even bigger equipment, like the A330 and 767-400, making a lot more money as old pilots leave. What % of SWA pilots will move up to Capt within the next 10 years as they only retire about 150 a year? When one Capt at SWA leaves, one FO moves up and they hire a new one. At a legacy, one retirement at the top allows 10 upward movements, all with higher pay. Not at SWA. That is a HUGE difference you fail to understand. 4 years in a row around 2020 over 700 pilots are scheduled to retire at age 65 EACH YEAR. You probably can't fathom how much upward movement that means. So, get those hedge clippers ready Kato Kalin, cause you will be busy working at my guest cabin while I'm off to Rio or Munich, but this time from the left seat.


Bye Bye---General Lee

 

[General Lee]

LAX and Seattle Key Delta's West Coast Strategy
Ted Reed
03/07/13 - 11:25 AM EST

LOS ANGELES (TheStreet) -- Delta (DAL) said it will increase its capacity at Los Angeles International Airport by 12%, further refining
its "four corners" domestic hub strategy.

Even with the increase, which includes new or expanded service to 14 destinations, Delta will remain third among the Big Three
carriers at LAX, where United (UAL) has the biggest presence with 17% of the passengers in January, according to airport statistics.
Future partners American (AAMRQ.PK) and US Airways (LCC) could combine into the top LAX carrier, because the former has a
16% passenger share while the latter has 3%. They overlap only on the LAX/Phoenix route, one of the 12 routes where they compete.
Currrently, American has 151 daily LAX departures, while US Airways has 17.

Delta's West Coast strategy involves three cities: Salt Lake City, where it operates a hub that serves east-west traffic; Seattle, where
it is building international service; and Los Angeles.
"Our four corners are growing international launch points," said Delta spokesman Anthony Black. "We have New York and Atlanta on
the East Coast, Los Angeles and Seattle on the West Coast." Delta also relies on midwest hubs in Detroit, Memphis and Minneapolis.
But the approaches differ in the two West Coast cities. "At LAX, we have 11 international partners that we code share with, plus
Alaska, and we will expect to have Virgin Atlantic later this year," Black said. "That's 13 partners -- a lot of metal on which to
connect passengers." Among the partners are two mainline Chinese carriers, Eastern and China Southern. From LAX, Delta
itself operates just three international flights -- one to Tokyo Haneda, one to Tokyo Narita and one to Sydney.

In Seattle, by contrast, Delta relies on domestic feed from partner Alaska and will fly to seven international destinations --
Amsterdam, Paris, Beijing, Osaka and Narita as well as Haneda and Shanghai, which will be added this summer. "We rely on
international partners in LAX and on domestic feed in Seattle," Black said.
The newly announced Los Angeles operations include three daily flights to Seattle and daily service to Nashville, effective April 8. Delta
will also add service to San Jose, Costa Rica, in July and will bulk up on western cities, adding flights to San Jose, Calif., and one each
to Oakland, Phoenix, Sacramento and Spokane. Service will also be increased to Guadalajara, Puerto Vallarta and New Orleans.
Seasonal summer flights will be added to Anchorage, Bozeman and Boston. By summer, Delta will operate 118 peak-day departures to
40 cities, after adding about 65 flights since 2006.

Last year, Alaska relocated to LAX Terminal 6, enabling more convenient connections to Delta operations in Terminal 5 and Terminal
6. Delta expects to begin code-shares later this year with Virgin Atlantic on Los Angeles-London Heathrow, the second busiest
international market in the U.S.

Bob McAdoo, airline analyst for Los Angeles-based Imperial Capital, said Delta's new flights in Los Angeles bulk up the operation but
do not represent major additions in themselves. McAdoo said it is Seattle that is the key to Delta's West Coast presence. "Seattle is a
better hub for jumping off to Asia because, for many destinations, it requires a less circuitous than a connection in Los
Angeles or San Francisco does."

Also, "a lot of people would prefer to connect to Asia in Seattle, rather than at Narita, because they are connecting in their own country," McAdoo said. "So it makes sense for Delta to have non-stop from Seattle to as many (international)
destinations as they can get."


Bye Bye---General Lee