Delta Airlines bought a fuel refinery in New Jersey that has the ability to provide as much as 80% of all their fleet fuel needs and which has direct connections to both JFK and La Guardia airports by pipeline.   Most airlines hedge their fuel costs by purchasing fuel oil contracts which happen to track closely in price with the cost of jet fuel (which isn’t sold with market contracts).  It offsets price spikes and makes fuel costs more predictable and manageable.

Delta’s purchase of the Phillips66 refinery is an interesting move.  The cost was relatively low $150million for the purchase and an additional $100million to fully convert the refinery over to jet fuel production.  To an airline, that’s pocket change.  To Delta, that means they can cut out a significant portion of the middle man in their fuel costs.

How do the fuel the fleet from New Jersey only?  They don’t.  They’ll supply their own fuel to their own aircraft in the NYC area, yes.  That fuel demand in that area alone will find Delta saving big dollars.  They’ll also sell that fuel to other airlines at those respective airports at a profit which will then offset Delta’s fuel costs in other parts of the country.  It’s a way of hedging prices more closely to the market prices for jet fuel and gives them an assured supply in a market that has historically been a bit touchy on prices.

Filed under: Airline News by ajax
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