Exclusive: Delta's refinery sacrifices profits for lower fuel cost - memo

Wed Aug 3, 2016 9:35am EDT
 
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By Jarrett Renshaw

NEW YORK (Reuters) - Delta Air Lines Inc is flooding the New York market with jet fuel from its refinery, sacrificing refining profits in order to lower the carrier’s fuel costs, according to a company memo seen by Reuters.

   The memo, written by the head of Delta’s Monroe Energy subsidiary, says the refinery will act against its own financial interest to try to maintain lower jet fuel prices and save the nation’s second-largest airline money on fuel, its top operating expense.

    The unusual move, in a unique situation, adds to long-standing questions about Delta’s decision to purchase the Philadelphia refinery in 2012. Critics have argued that the entire industry benefits from lower jet fuel prices, giving Delta no advantage over its competitors for owning the refinery.

Jeff Warmann, who runs the refinery, told employees about the strategy in a July 27 memo. While weak jet fuel margins have hurt the refinery’s bottom line, they have also resulted in lower fuel costs for parent company Delta, Warmann argued.

“Normally with such low product prices, a merchant refiner would shift yields and production to other products. We plan to continue to produce jet fuel and pump it into the New York market, pressuring the price of jet fuel to even lower levels," Warmann wrote. "This negatively impacts our refinery economics, but greatly helps reduce Delta’s fuel cost.”

The 182,000 barrel-per-day (bpd) refinery based in Trainer, Pennsylvania - about 10 miles (16 km) southwest of Philadelphia - produces roughly 40,000 bpd of jet fuel, accounting for roughly 30 percent of the New York Harbor market, experts say. The memo does not say how long it plans on running with this strategy.

The New York Harbor market is the center of U.S. jet fuel trading.

  Continued...

 
Delta planes line up at their gates while on the tarmac of Salt Lake City International Airport in Utah September 28, 2013. REUTERS/Lucas Jackson/File Photo