Delta Cuts Out Pesky Fuel Middleman, Buys Itself An Oil Refinery

Delta Air Lines has been battling rising jet fuel prices with all the other airlines, trying to institute prices hikes — some successful, some not — and do what it can to cope. And now that everything else hasn’t worked, it’s decided hey, why not just cut to the heart of the problem and buy an oil refinery?

In a move that seems a bit like buying a dairy farm because you want to save on milk, Delta is purchasing a Pennsylvania oil refinery from ConocoPhillips for $150 million. It’s the first airline to ever do such a thing, reports Reuters.

Delta hopes to save money on fuel costs with the move, saying it will cut $300 million annual from the cost of jet fuel, which last year was $12 billion. Beyond the oil produced at its own refinery, there are agreements to exchange refined products for jet fuel that will bring in 80% of its U.S. fuel needs.

You aren’t the only one confused — analysts have been apparently furrowing their brows over the deal since it hit news last month. Some politicians and officials are relieved, however, as the refinery had been in danger of being shut down, which would have cost jobs and perhaps a spike in summer fuel costs.

What delta will really be saving on is the cost of refining a barrel of jet fuel. It will still have to pay whatever the market price is for a barrel of crude oil, but this deal will help allay some costs.

“What we’re tackling here today is the jet crack spread, which you cannot hedge in the marketplace effectively,” Delta Chief Executive Richard Anderson told reporters during a phone briefing. “It’s the fastest single growing cost in our book of expense at Delta.”

Somehow this whole thing sounds like the premise for some kind of wacky romantic comedy. Did Ashton Kutcher actually buy Delta and the oil refinery to save his best friend’s job and impress Mandy Moore?

Delta buys refinery, becoming first airline to make own fuel [Reuters]