Delta’s Foray Into The Fuel Industry Paying Off?

Delta Airlines is on its way to achieving record annual earnings after posting a massive third quarter net profit of almost $1.4bn.

One miniscule but still significant contributor to that result was a $3m profit at Delta’s Trainer oil refinery, which it bought to control costs arising from the crack spread – the amount above the oil price that airlines pay to refineries for jet fuel.

This was Trainer’s first quarter in the black since Delta acquired it a year ago; a welcome fillip after a series of hiccups that had caused many to scoff at Delta’s foray into the fuel industry.

“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," Delta CEO Richard Anderson told investors.

Trainer’s success partly contributed to a reduction in Delta’s year-on-year fuel costs, but the real profit driver was the US domestic market, where sales were up 11 per cent and yields by a whopping nine per cent from a year ago.

Delta also appears to be reaping dividends from its transatlantic partnership with Virgin Atlantic: sales growth on routes to Europe considerably outpaced capacity increases and yields also improved.

However, sales fell and yields softened on trans-Pacific routes – Delta’s third biggest market – due mainly to the weak Japanese yen.

The outlook for the Pacific remains mixed, though Delta forecasts that system-wide margins for the next quarter should be a healthy eight per cent or so. That compares with a global airline industry profit margin of 3.2 per cent last year.

Along with American Airlines’ swing back into the black, the Delta result is another strong sign of favourable winds for the US airline industry, which now appears close to the end of more than a decade of restructuring, consolidation and rationalisation.

Alex Derber, [email protected]

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