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DL Refinery article

General Lee

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Delta-owned Trainer refinery posts profit
By Linda Loyd, Inquirer Staff Writer
Wednesday, October 23, 2013

Delta Air Lines said Tuesday its refinery in Trainer, Delaware County, posted a $3 million profit for the three months ended Sept. 30.

It was the first quarterly profit since Delta bought the former ConocoPhillips refinery last year to supply itself with jet fuel.

"We have a tremendous opportunity with the Trainer refinery," Delta CEO Richard Anderson told investors on a conference call discussing third-quarter financial results. "Importantly, the refinery's production has proven to be effective in keeping jet cracks in check, particularly in the New York harbor."

The "crack spread" is the difference between the cost of crude oil and the selling price of jet fuel - it is the price paid to refiners.

Airlines can "hedge" the cost of oil by entering into long-term future contracts. But they cannot hedge the crack spread, or the refiners' profit margin, which fluctuates based on supply, demand, and market trends.

"Our next step is to improve the refinery's profitability through lower-cost domestic crude supply from the Bakken field, increase jet fuel output, and operational initiatives to improve throughput and product mix," Anderson said.




Bye Bye---General Lee
 

scoreboardII

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Hope it keeps up for you. It just rings of the Pan Am days in buying hotels to offer a more complete service, but in reality coming out of your core competency. Just wondering why Ford or Chevy don't buy oil refineries to fuel the cars they sell.
 

filejw

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It's not even close to the same as Pan Am buying hotels. Its is more about having some control of a commodity that's is 40% of your operating cost.When you hear upper managers speak of the refinery they almost seem like just coming out even is ok. The crack spread is what they like to talk about.
 

scoreboardII

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The crack spread is what they like to talk about.
That's because it has the words "crack" and "spread" next to each other. :)

And yes it is even close. It's the exact same concept. If your comment was true, Ford and Chevy would own metal refineries and tire manufactures.

Look, if it's working, be happy, I'm fine, just pointing out that coming off your core competency is a risky proposition, and in the airline world, has not worked.

Even SWA was bit playing fuel futures instead of running an airline.
 

General Lee

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Hope it keeps up for you. It just rings of the Pan Am days in buying hotels to offer a more complete service, but in reality coming out of your core competency. Just wondering why Ford or Chevy don't buy oil refineries to fuel the cars they sell.

Remember, the DL execs aren't running it day to day, rather they have oil people running it. Monroe Energy (Monroe, LA was the old DL headquarters and where DL started. DL actually had yearly shareholder meetings there until the mid 90's) runs it.

Bye Bye---General Lee
 

Ticker

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Just wondering why Ford or Chevy don't buy oil refineries to fuel the cars they sell.

Well, they did once didn't they? I have vague memories of high school history teachers droning on about the "trusts" and the "trust busters". Didn't one of the car manufacturers have oil, rubber, steel, etc. companies under it's umbrella? Maybe that was standard oil I'm thinking of. I can't recall high school course work all that well. I was a bit pre-occupied with...well...other things. ;)
 

filejw

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Well, they did once didn't they? I have vague memories of high school history teachers droning on about the "trusts" and the "trust busters". Didn't one of the car manufacturers have oil, rubber, steel, etc. companies under it's umbrella? Maybe that was standard oil I'm thinking of. I can't recall high school course work all that well. I was a bit pre-occupied with...well...other things. ;)

Try Sherman Antitrust Act (1890)...
 

dalad

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Hope it keeps up for you. It just rings of the Pan Am days in buying hotels to offer a more complete service, but in reality coming out of your core competency. Just wondering why Ford or Chevy don't buy oil refineries to fuel the cars they sell.
UAL also did it in the 1980's by buying I believe Hertz and a hotel chain. Didn't they also change their corporate name to reflect this? Score, you are referring to vertical monopoly, this refinery deal is nowhere close.
 

DUBLINFLYER

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There is significant operating costs associated with running an oil refinery and equipment replacement costs are high, the refining process is very hard and demanding on equipment and it only takes one or two pieces of equipment to malfunction to shut down and stop production either the crude or jet fuel process lines.
 

tailhookah

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It seems to be working well now. Time will tell. But with qtrs like the last I think they can handle it. I am sure even though they showed only a 3 million profit, it payed off to the operation far, far greater than just the 3 mil.

Tail
 

SplitBar

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Hope it keeps up for you. It just rings of the Pan Am days in buying hotels to offer a more complete service, but in reality coming out of your core competency. Just wondering why Ford or Chevy don't buy oil refineries to fuel the cars they sell.

Ford and Chevy only have to fill up the tank once for a car that they sell. They do however own their own steel plants. Same concept.
 

20sx

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It seems to be working well now. Time will tell. But with qtrs like the last I think they can handle it. I am sure even though they showed only a 3 million profit, it payed off to the operation far, far greater than just the 3 mil.

Tail

I'm sure if they can keep the price down by even a few cents that would have enormous savings. Well worth the cost of the refinery.
 

scoreboardII

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Well, they did once didn't they? I have vague memories of high school history teachers droning on about the "trusts" and the "trust busters". Didn't one of the car manufacturers have oil, rubber, steel, etc. companies under it's umbrella? Maybe that was standard oil I'm thinking of. I can't recall high school course work all that well. I was a bit pre-occupied with...well...other things. ;)
You are correct, Ford had it all. They made everything top to bottom. But remember, they did that because they had no supplier who could do it cheaper.
 

scoreboardII

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There is significant operating costs associated with running an oil refinery and equipment replacement costs are high, the refining process is very hard and demanding on equipment and it only takes one or two pieces of equipment to malfunction to shut down and stop production either the crude or jet fuel process lines.
And this is the business point I make, DAL is accepting the risks of running a refinery. One bad snowstorm, one refinery fire, etc, it all goes out the window.
 

scoreboardII

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Ford and Chevy only have to fill up the tank once for a car that they sell. They do however own their own steel plants. Same concept.
My intent was to say there could be Ford fuel stations all over the country, why isn't there? Same business concept of integration and core competency. This has no relation to vertical monopoly, it is vertical integration to control hold up problems more than cost.

Folks, it's working, good for Delta. But it is risky business, far more than hedging.
 
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SplitBar

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My intent was to say there could be Ford fuel stations all over the country, why isn't there? Same business concept of integration and core competency. This has no relation to vertical monopoly, it is vertical integration to control hold up problems more than cost.

Folks, it's working, good for Delta. But it is risky business, far more than hedging.

Comparing Ford/GM owning it's own fuel stations to Delta owning a refinery is an apples to oranges comparison. Ford doesn't need fuel stations like Delta needs Jet A.
 

Quack

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Correct me if I am wrong, but doesn't Delta owning a refinery help the rest of the industry as well? If they can reduce the crack spreads and lower their fuel costs, wouldn't that put pressure on the competing fuel companies who supply United, American, SWA, etc to lower their pricing or become a little more competitive? If so, I see it as a win win for the other carriers without the overhead.
 

SplitBar

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Correct me if I am wrong, but doesn't Delta owning a refinery help the rest of the industry as well? If they can reduce the crack spreads and lower their fuel costs, wouldn't that put pressure on the competing fuel companies who supply United, American, SWA, etc to lower their pricing or become a little more competitive? If so, I see it as a win win for the other carriers without the overhead.

Yes, even if Delta loses $$ on the refinery they still come out ahead due to the pressure that it puts on the crack spreads. So, yes, other airlines benefit as well.
 

zasca

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They make profit off the crack spread when oil is expensive and other refiners maintain the big spread. If oil goes down and the spread narrows, the airline makes profits off low fuel prices. It is a very good, low cost hedge for a company heavily dependent on a fluctuating commodity. (as long as nothing goes wrong with the plant)
 

scoreboardII

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Comparing Ford/GM owning it's own fuel stations to Delta owning a refinery is an apples to oranges comparison. Ford doesn't need fuel stations like Delta needs Jet A.
It's not apples to oranges. It's at worst Macintosh to Ruby Red. If you control all the aspects of a product start to finish in vertical integration, then controlling the fuel to a car is exactly like controlling the fuel to the jet, sorry.
 
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