Done Deal -- $120M for Refinery
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WorldTraveler
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The following statement from the article sums up EXACTLY what so many fear, and what I noted many posts ago:
"The dearth of options Delta's competitors could use to respond makes Delta's move look even better and may leave them holding out some legitimate hope that the gambit will fail. There is no precedent within the airline industry—and precious few outside it—for an end-user acquiring a refinery. "
"The dearth of options Delta's competitors could use to respond makes Delta's move look even better and may leave them holding out some legitimate hope that the gambit will fail. There is no precedent within the airline industry—and precious few outside it—for an end-user acquiring a refinery. "
BoeingBoy
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"could"..."may". Given the lack of absolutes in the article, I would take the last sentence you quoted as a cautionary note...
Like I've said, by the 4th quarter report we'll know whether DL is right or wrong. Personally, I look forward to seeing the results...
Jim
Like I've said, by the 4th quarter report we'll know whether DL is right or wrong. Personally, I look forward to seeing the results...
Jim
WorldTraveler
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I do too! But I'm not sure that DL's competitors are as interested in seeing DL ramp up this refinery.
Given that the cost of acquiring and operating the refinery is a fraction of what DL spends on fuel, the chances of DL making a bad move big enough that it would affect DL's viability is quite small. OTOH, the chances that DL could tack on 3-5% more in cost savings on top of one of the strongest set of financials has the potential to dramatically change the economics of the US airline industry - esp. when those cost savings could most directly affect NYC, a highly competitive market where the big 3 are battling it out, where AA needs to recover a position, where DL's growth esp. at LGA already has the potential to add to its int'l market share, and where UA faces higher costs as part of its labor integration process.
I don't think it is an understatement at all to say that this deal could be a game changer, as AW notes.
Given that the cost of acquiring and operating the refinery is a fraction of what DL spends on fuel, the chances of DL making a bad move big enough that it would affect DL's viability is quite small. OTOH, the chances that DL could tack on 3-5% more in cost savings on top of one of the strongest set of financials has the potential to dramatically change the economics of the US airline industry - esp. when those cost savings could most directly affect NYC, a highly competitive market where the big 3 are battling it out, where AA needs to recover a position, where DL's growth esp. at LGA already has the potential to add to its int'l market share, and where UA faces higher costs as part of its labor integration process.
I don't think it is an understatement at all to say that this deal could be a game changer, as AW notes.
WorldTraveler
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The ability to obtain more DOMESTIC business at LGA likely will translate into more INTERNATIONAL share at JFK.
LGA is the preferred airport for NYC short-haul business travel and JFK is the preferred airport for NYC international travel. DL already has the highest REVENUE share at both airports; the slot deal will increase DL's revenue share of the short-haul NYC business market because DL will offer service to just about every city that has service on ANY carrier from LGA - and it is fully expected they will gain more international share since large portions of traffic at LGA are under corporate contracts.
Add in a cost advantage that is part of the intended benefit of the refinery deal and it is entirely possible that DL could gain a permanent cost advantage not unlike what fueled WN's domestic growth almost a decade ago and it is very possible that DL could be in a position to permanently gain an advantage in the key NE US markets.
LGA is the preferred airport for NYC short-haul business travel and JFK is the preferred airport for NYC international travel. DL already has the highest REVENUE share at both airports; the slot deal will increase DL's revenue share of the short-haul NYC business market because DL will offer service to just about every city that has service on ANY carrier from LGA - and it is fully expected they will gain more international share since large portions of traffic at LGA are under corporate contracts.
Add in a cost advantage that is part of the intended benefit of the refinery deal and it is entirely possible that DL could gain a permanent cost advantage not unlike what fueled WN's domestic growth almost a decade ago and it is very possible that DL could be in a position to permanently gain an advantage in the key NE US markets.
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LaGuardia is the busiest airport in the United States without any non-stop service to and from Europe A perimeter rule prohibits nonstop flights to or from points beyond 1,500 statute miles (2,400 km). Exceptions to the perimeter rule are flights on Saturdays and flights to Denver. Transcontinental and international flights use JFK or Newark.
The only "international" flights are: YUL, YYZ, NAS,
The only "international" flights are: YUL, YYZ, NAS,
signals
Veteran
Why do people continue to look at this refinery deal as the Jet Fuel issue? Correct me if I am wrong, but isn't diesel the most expensive fuel on the market? Doesn't this refinery produce diesel?
I might be looking at this from a logical or simpleton way,BUT, if it offsets Delta's fuel cost as a whole, wouldn't it be worth it?...even if it doesn't produce one fluid ounce of jet fuel?
I'm still giving Delta the benefit of the doubt on this one. I think it was a smart move. The next 5 years will should bring things to light, IMO.
I might be looking at this from a logical or simpleton way,BUT, if it offsets Delta's fuel cost as a whole, wouldn't it be worth it?...even if it doesn't produce one fluid ounce of jet fuel?
I'm still giving Delta the benefit of the doubt on this one. I think it was a smart move. The next 5 years will should bring things to light, IMO.
QA4Jet-A
Veteran
Interesting thought but, is not Delta looking to off-set Jet-A pricing? If a refinery can produce Jet-A, they darn sure should be able to produce #Two Oil = Diesel! If not, why even go there?
WorldTraveler
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700,
there is still int'l revenue from LGA even if there are not nonstop flights. In fact about 5% of the revenue from LGA is to destinations outside of N. America - which means it all has to be connecting traffic. The majority of that traffic is to Asia or Latin America rather than Europe but there is indeed LGA-Europe traffic connecting over other hubs, including on some of US' multiple LGA-PHL flights.
IN the same way, there is a huge amount of revenue from LGA to the wetern US even though there are no nonstop flights from LGA but there are from JFK.
Even though the NY state side of the NYC market is served by two airports with separate flight profiles, the market is one - which is why DL is pushing to increase its presence at both airports.
Carriers who have the largest domestic presence at an airport and also have a comparable int'l presence usually have int'l share proportionate to their domestic presence.
The WAS market - with similar split airports - has different dominant carriers at each of the airports. DL's intention is to be the dominant carrier at both LGA and JFK and use the position of LGA and JFK as where the majority of NYC revenue flies to become the dominant carrier in NYC, even though UA has most of its presence at EWR which can serve all markets.
The domestic/int'l overlap in part is why WN is recognizing the value it has in serving markets in Latin America based on their 20+% share of the US domestic market.
If DL has a structural cost advantage in the NE because of the refinery, it has the potential to shift not only int'l revenue where fuel costs have a bigger impact but also gain a halo effect at JFK because of its larger presence at LGA.
Signals is right that the coming years will be very interesting to watch, esp. in the NYC market. I don't really think it will take 5 years to see the evidence.
.
QA4,
the refinery is supposed to produce about 19% diesel which is pretty much unchanged after the conversion to increase jet fuel production which will more than double from 14 to 32% - at the expense of gasoline and other products.
there is still int'l revenue from LGA even if there are not nonstop flights. In fact about 5% of the revenue from LGA is to destinations outside of N. America - which means it all has to be connecting traffic. The majority of that traffic is to Asia or Latin America rather than Europe but there is indeed LGA-Europe traffic connecting over other hubs, including on some of US' multiple LGA-PHL flights.
IN the same way, there is a huge amount of revenue from LGA to the wetern US even though there are no nonstop flights from LGA but there are from JFK.
Even though the NY state side of the NYC market is served by two airports with separate flight profiles, the market is one - which is why DL is pushing to increase its presence at both airports.
Carriers who have the largest domestic presence at an airport and also have a comparable int'l presence usually have int'l share proportionate to their domestic presence.
The WAS market - with similar split airports - has different dominant carriers at each of the airports. DL's intention is to be the dominant carrier at both LGA and JFK and use the position of LGA and JFK as where the majority of NYC revenue flies to become the dominant carrier in NYC, even though UA has most of its presence at EWR which can serve all markets.
The domestic/int'l overlap in part is why WN is recognizing the value it has in serving markets in Latin America based on their 20+% share of the US domestic market.
If DL has a structural cost advantage in the NE because of the refinery, it has the potential to shift not only int'l revenue where fuel costs have a bigger impact but also gain a halo effect at JFK because of its larger presence at LGA.
Signals is right that the coming years will be very interesting to watch, esp. in the NYC market. I don't really think it will take 5 years to see the evidence.
.
QA4,
the refinery is supposed to produce about 19% diesel which is pretty much unchanged after the conversion to increase jet fuel production which will more than double from 14 to 32% - at the expense of gasoline and other products.
traderjake
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When an Airline Buys an Oil Refinery
http://www.zerohedge...ys-oil-refinery
(5) Delta seems to have entered this deal out of desperation during the oil price spike from Iran nuclear controversy. If oil price stabilizes or weakens as some of the forecasts seem to suggest, this could well end up being a wasted investment.
http://www.zerohedge...ys-oil-refinery
(5) Delta seems to have entered this deal out of desperation during the oil price spike from Iran nuclear controversy. If oil price stabilizes or weakens as some of the forecasts seem to suggest, this could well end up being a wasted investment.
WorldTraveler
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The same quote has shown up several places on the internet but it misses the fact that DL's interest in the refinery is driven by the crack spread on jet fuel which has not diminished although the price of oil has gone down. Even if the crack spread diminishes, DL says it will gain based on more favorable exchanges for other products the refinery will produce but which DL will not need.
DL also says there will be distribution savings since the jet fuel produced by the refinery will be used in DL's nearby NYC and NE US operations compared to other operators in the NE which will have to buy fuel that is imported from other regions.
It is also possible that the supply of jet fuel will continue to shrink as other refineries are shut down since most US refineries are designed to maximize the output of gasoline, for which supply is declining. DL believes that they have assured supply of 80% of their current domestic jet fuel needs thru direct jet fuel production of the refinery and the swaps of non-jet fuel products from the refinery with jet fuel in other parts of the country.
Whether DL is right or not will be closely examined in the months ahead.
DL also says there will be distribution savings since the jet fuel produced by the refinery will be used in DL's nearby NYC and NE US operations compared to other operators in the NE which will have to buy fuel that is imported from other regions.
It is also possible that the supply of jet fuel will continue to shrink as other refineries are shut down since most US refineries are designed to maximize the output of gasoline, for which supply is declining. DL believes that they have assured supply of 80% of their current domestic jet fuel needs thru direct jet fuel production of the refinery and the swaps of non-jet fuel products from the refinery with jet fuel in other parts of the country.
Whether DL is right or not will be closely examined in the months ahead.
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