With Delta taking a hit because of rising fuel costs, the airline is preparing to launch a counterattack by opening its recently acquired oil refinery.
Atlanta-based Delta acquired the Trainer, Pa., refinery in June and plans to begin production later this month.
Motorists could see some benefits too. Bringing more refining capacity on line will “hopefully help keep gas costs lower,” Delta president Ed Bastian said at a Deutsche Bank investor conference in New York on Thursday.
The airline hopes to get $300 million in annual savings from the refinery. Rather than getting all crude oil for the refinery from the North Atlantic, the company is also looking at bringing in lower priced Bakken crude oil by rail from North Dakota, which Bastian said “could lead to even larger savings.”
But the benefits of operating the refinery won’t kick in until later this year.
Meanwhile, the company is scaling back its estimates of how much it will have in cash reserves and operating margin for this quarter, citing “the rapid ramp-up in fuel prices.”
Bastian said Delta now expects an operating profit margin of 9 to 11 percent in the third quarter ending Sept. 30, down from its previous expectations of a 10 to 12 percent margin.
The company also expects to have total unrestricted liquidity — a measure of cash reserves — of $5 billion, down $100 million from its previous estimate.
Meanwhile, the amount Delta expects to pay per gallon for fuel rose from $3.09 to $3.23.
An increase in the premium for jet fuel compared to crude oil could boost the savings Delta gets from operating the refinery, according to Bastian. That premium — called the crack spread — is “the real enemy we need to attack,” Bastian said.
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